Stocks closed higher on Monday following an uneven start to the trading day as investors look ahead to a crucial inflation update and the Federal Reserve's last policy decision of the year.
Tech stocks also moved higher, reversing earlier losses, with the Nasdaq Composite (^IXIC) adding roughly 0.2% — its highest close since April 2022.
The moves come as investors brace for two events that could set the tone for stocks going into 2024: November's reading on consumer inflation and the Fed's interest rate decision.
Jobs data on Friday bolstered hopes the Fed could score a "soft landing" for a US economy burdened with historically high borrowing costs. That helped the gauges close out their sixth straight week of wins, with the S&P 500 and Nasdaq ending at their highest levels since early 2022.
Now the focus is shifting to the Consumer Price Index data due Tuesday, which could put that optimism to the test. Signs of cooling in inflation have cemented expectations that the Fed will put a pause on rate hikes this week, while bets are growing for a rate cut before the summer.
In individual corporates, Macy's (M) shares closed nearly 20% higher after getting a $5.8 billion buyout offer. The store chain’s board is considering the bid to take it private, a source told Yahoo Finance.
Stocks close higher
Stocks closed in the green on Monday as investors look ahead to a crucial inflation update and the Federal Reserve's last policy decision of the year.
Here comes the CPI report...
On Tuesday, investors will digest one of the most important data points the Federal Reserve will consider in its next interest rate decision: November's Consumer Price Index (CPI).
The inflation report, set for release at 8:30 a.m. ET, is expected to show headline inflation of 3.1%, a slight deceleration from October's 3.2% annual gain in prices, according to estimates from Bloomberg. Over the prior month, consumer prices are expected to remain flat for the second straight month.
Lower energy costs are likely to have held the headline figures to a smaller annual gain, according to Bank of America.
The bank anticipates a 3.5% month-over-month drop in energy prices after a 2.5% decline in October. The dip will be driven by lower gas prices, which fell sharply during the month of November.
On a "core" basis, which strips out the more volatile costs of food and gas, prices in November are expected to have risen 4.0% over last year — matching the annual increase seen in October, according to Bloomberg data. Monthly core prices are expected to have climbed 0.3%, slightly higher than October's 0.2% monthly rise.
Bank of America US economist Michael Gapen said higher prices for "volatile" categories like lodging away from home and used cars should lead to a "firmer core" after both of those categories saw prices decline in October.
Coinbase stock plunges as bitcoin loses steam
The decline in the crypto exchange's stock raises questions about the sustainability of crypto's comeback. Prior to the weekend, bitcoin had been on a tear, jumping more than 150% year to date and leading some to question whether the industry is rebounding from earlier scandals, namely the failure of FTX.
Broadly, crypto's blistering rally in recent months has boosted shares in companies exposed to digital assets like Coinbase and MicroStrategy (MSTR). The enthusiasm comes as investors await a decision by the Securities and Exchange Commission (SEC) on whether to approve a spot bitcoin exchange-traded fund (ETF).
The bullishness could raise the likelihood of a short squeeze event, when gains force traders betting against a stock to buy it back at a loss. Data from S3 Partners LLC shows traders betting on declines in crypto-related companies such as Coinbase, MicroStrategy, and Marathon Digital Holdings are now nursing $6.05 billion in on-paper losses.
Meanwhile, the uncertainty swirling around the sector’s troubles continues. The SEC said Friday that its case against Binance Holdings should advance despite the company's recent $4.3 billion settlement with the DOJ (Binance has asked the court that the case be dismissed).
The SEC sued the exchange and Changpeng Zhao in June for allegedly mishandling customer funds, misleading investors and regulators, and breaking securities rules.
Paramount deal reports swirl
Paramount Global (PARA) saw shares slide more than 3% on Monday after surging as much as 14% on Friday.
The moves come after the New York Times and Puck added on to previous reports that private investment firm RedBird Capital, along with Skydance Media CEO David Ellison, were looking to acquire National Amusements' voting shares and take control of the media conglomerate.
Shari Redstone currently serves as the non-executive chairwoman of Paramount Global and president of her family's holding company, National Amusements (NAI), which controls the company through its class A shares.
Acquiring National Amusements shares could allow RedBird and Skydance to take control of the company while avoiding a full purchase. The group could then offload undesirable assets from there or find a strategic partner.
According to Deadline, RedBird and Skydance could be interested in Paramount Pictures and some of the company's other intellectual property.
National Amusements, which owns approximately 10% of Paramount's equity capital value, maintains 77% of voting shares — valued at around $1 billion, although that does not account for what could be a "meaningful control premium," Wells Fargo analyst Steve Cahall wrote in a note to clients on Friday.
In a follow-up note on Sunday, Cahall added: "We think there's a decent chance a deal is done as we think the Redstone Trust may be ready to move on from operations to monetization. But, there is significant timing risk and complexity to any potential transaction."
Loop Capital, which downgraded shares to Sell from Hold but maintained its $12 price target, further explained that complexity, writing in a note on Friday, "We believe there are a number of buyers for the Studio, library and lot, but not many that are willing to also buy the legacy media baggage that comes with the transaction. ... We simply do not see the upside."
Read more on what a potential deal could mean for the company here.
2024 could be 'a catch-22 situation' for markets: JPM
JPMorgan (JPM) is warning investors of a "catch-22 situation" for US markets next year.
According to strategist Marko Kolanovic, a market rally will be unsustainable if the Federal Reserve does not cut interest rates.
"This is a catch-22 situation, in which risk assets can’t have a sustainable rally at this level of monetary restriction, and there will likely be no decisive easing unless risky assets correct (or inflation declines due to, for example, weaker demand, thus hurting corporate profits)," Kolanovic wrote in a 2024 outlook report, published on Friday.
"This would imply that we would need to first see some market declines and volatility during 2024 before easing of monetary conditions and a more sustainable rally," he continued.
Kolanovic, who has been bearish on the rally so far this year, said he prefers bonds and cash to equities and other risk assets, writing in the report, "In a very optimistic economic scenario, we can see equities outperforming bonds (or cash) by ~5%, while in a likely environment of declining growth or a recession, they could underperform cash by ~20%."
"Regardless of whether a recession happens or not, ex-ante, the risk-reward in equities and other risky assets is worse than in cash or bonds."
Still, the stock market has continued to outperform in 2023 with the S&P 500 (^GSPC) up 20% since the start of the year. The Dow Jones Industrial Average (^DJI) and tech-heavy Nasdaq Composite (^IXIC) are up about 9% and 38%, respectively, over that same time period.
Treasury yields, meanwhile, rallied to record highs earlier this fall but have since retreated. The yield on the benchmark 10-year note (^TNX) is currently trading near 4.27% after surpassing 5% in October.
Stocks mixed in afternoon trading
Stocks were mixed during afternoon trading Monday as investors looked to a crucial inflation update and the Federal Reserve's policy meeting later this week.
Microsoft agrees to AI rules in union contract negotiations
Microsoft and a group of video game workers at the tech giant's in-house studio ZeniMax have agreed to union contract language around the use of artificial intelligence.
The tentative agreement on AI provisions would cover a few hundred staff, according to a report from Bloomberg, and incorporates Microsoft’s previously announced AI principles, including the provision to “treat all people fairly” and “empower everyone and engage people.”
Microsoft's talks over the use of AI are part of the company's negotiations with the Communications Workers of America, the first US collective bargaining in the history of the tech giant.
The new agreement comes after Hollywood writers and entertainment workers secured guarantees for how studios are allowed to use AI. Critics and workers that are likely to be impacted by the spread of the technology have raised concerns over the potential exploitation of creative works, and questions over compensation.
“The goal is to ensure tools and technologies benefit rather than harm workers,” according to the contract language revealed in the Bloomberg report. Microsoft is also obligated to inform the union when its use of AI “may impact work performed” by union members, and to negotiate over the impact on employees if the union requests it.
Stocks face an 'unequal and fragmented' 2024
Wall Street widely expects the Federal Reserve to hold rates steady when central bankers unveil their policy decision later this week.
But that doesn't mean that stocks will continue their rally into next year.
Investors are banking that the Fed will achieve a soft landing and start to bring rates down in 2024. While that scenario is still possible, rate cuts might also spell a slowing or contracting economy, which would place equities in a different environment than they are in today, wrote Greg Marcus, managing director at UBS Private Wealth Management, in a note on Monday.
Individual stocks will also fare differently next year, "with a variety of winners and losers across all sectors," he said, in an "unequal and fragmented" equities market. Even if the Fed climbs down from its tightening campaign, interest rates will still remain higher than during the lucrative zero percent interest rate era.
"Investors will be more focused on rewarding companies who show signs of growth and avoiding profitless and speculative companies," he said, emphasizing that fundamentals will play a bigger role than during the more heady 2010s. In 2024, investors will be more discerning in separating the wheat from the chaff, he said.
"Markets are already high right now, and although the economy has proven resilient to higher rates this year, that cannot go on indefinitely," said Marcus. "Rates will come down but they are still projected to be higher for longer, and not all companies will be able to navigate this environment."
Stocks trending in morning trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page during morning trading on Monday:
Macy's (M): Shares of the long-troubled retailer surged 17% Monday morning after a report revealed the company had received a $5.8 billion buyout offer from real estate investor Arkhouse Management and asset manager Brigade Capital Management. The offer, submitted earlier this month, valued Macy's at about $21 per share. The company's board is mulling the offer.
Occidental Petroleum (OXY): The energy company rose 1% after announcing plans to acquire oil and gas company CrownRock in a deal valued at about $12 billion. The CrownRock purchase comes as consolidation in the energy sector is ramping up and as the US recently hit an all-time high of oil production.
Coinbase (COIN): The crypto platform lost 3% as traders moved to lock in profits after Bitcoin (BTC-USD) and other digital currencies surged in recent weeks. Coinbase shares rose alongside the late-in-the-year token rally, notching its own high for the year as bitcoin surpassed $40,000. But the widespread selling appeared to pull down Coinbase shares. Bitcoin was down about 5% Monday morning.
Stocks open mixed as investors brace for Fed decision
Wall Street kicked the day off with muted trading as investors waited for a key update on inflation figures and the Federal Reserve's last policy decision of the year on Tuesday and Wednesday, respectively.