Market Snapshot: Dow logs highest close in almost two years as investors await inflation data, Fed decision

What drove markets

After a stronger-than-expected job report that helped propel stocks higher on Friday, U.S. equities extend gains as investors turn their attention to the final Fed meeting of the year on Wednesday, but also important inflation data ahead of that.

Economists expect that November consumer prices, due Tuesday at 8:30 a.m. Eastern time, will show soft headline inflation but a firm core reading, which strips out food and energy prices.

On Wednesday, Fed Chair Jerome Powell and his colleagues will announce the outcome of the two-day policy meeting, with the central bank mostly expected to hold its key benchmark policy rates steady in a range of 5.25% to 5.5%, according to CME FedWatch Tool.

Market strategists generally expect Tuesday’s inflation data, if it comes in as expected, not to be strong enough to substantially change the message from Powell at Wednesday’s Federal Open Market Committee meeting.

But the data may support the expectation that the first rate cut will not come until June, Bank of America economists Stephen Juneau and Michael Gapen, said in a Monday note. 

The market has priced in a high likelihood of the first interest-rate cut being made in March, which is “likely too early given our labor market and inflation outlook,” Juneau and Gapen said. “Of course, if data in labor, activity, and inflation come in materially weaker than we expect, then a cut as soon as March is a possibility.”

Matthew Weller, global head of research at StoneX, said that “regardless of what this week’s U.S. inflation report shows, Jerome Powell and company will want to see at least a few more months of job and inflation data before tweaking the current monetary policy settings.”

See: This week’s Fed meeting could slam brakes on year-end stock rally

Friday’s strong jobs data could have some bearing on what Powell has to say this week, said Peter Iosif, senior research analyst at Noteris.

“Despite the possibility of a seasonal effect, overall, the data tend to highlight once again the resilience and tightness of the U.S. employment market. The release may harden the Fed’s hawkish stance and contradict the market’s expectations for an early rate cut,” Iosif said.

The European Central Bank and the Bank of England will each announce policy decisions on Thursday. A Bank of Japan decision will come next week.

The yen was sinking against the dollar
USDJPY,
-0.21%
on Monday after Bloomberg reported, citing sources, that central bank officials were in no rush to end a decadeslong negative interest-rate policy soon. The yen rallied last week on rising expectations that officials were leaning in that direction.

Companies in focus

• Occidental Petroleum Corp.’s stock
  OXY,
  +1.04%
  rose 1% on Monday after the oil company said it would pay $12 billion for privately held Permian Basin oil and gas producer CrownRock LP. Occidental said the deal will add about $1 billion in cash flow in the first year based on $70 per barrel.

• Shares of Macy’s Inc.
  M,
  +19.44%
  jumped 19.4% after the Wall Street Journal reported that an investor group has made a $5.8 billion bid to take the department-store chain private.

• Hollysys Automation Technologies Ltd.’s stock 
  HOLI,
  +9.30%
  closed up 9.3% after the company agreed to be taken private by Ascendent Capital Partners in a deal that values the company at $1.66 billion.

Barbara Kollmeyer contributed.