US Stock Futures Point Higher as S&P 500 Nears Record; Dollar Sees Year-End Decline Amid Expectations of Fed Rate Cuts | Daily Market Analysis

Key events: 

• USA - Initial Jobless Claims
• USA - Pending Home Sales (MoM) (Nov)
• USA - Crude Oil Inventories

US stock futures exhibited upward momentum during Wednesday night's trading, building on slight gains observed in the previous session, as major benchmark indices approached all-time highs. Dow Jones Futures, S&P 500 Futures, and Nasdaq 100 Futures were trading within a narrow range of 0.1%.

This modest uptrend follows a day of subdued yet positive movements on Wall Street, with the S&P 500 inching up by 0.1%, nearing record-breaking territory. The Nasdaq Composite showed a nearly 0.2% increase, while the Dow closed 0.3% higher in the session.

These incremental gains are occurring as investors anticipate the conclusion of a robust year for stocks. With only two trading sessions remaining in 2023, both the Dow and the S&P 500 are poised to close the year with impressive gains of over 13% and 24%, respectively. The S&P 500 is within 0.5% of its highest closing level set in January 2022.

The NASDAQ Composite is on track for its strongest performance since 2003, surging over 44%, fueled by growing enthusiasm around artificial intelligence and a rebound among mega-cap tech stocks. All three major indices are set to mark their ninth consecutive weeks of gains, highlighting a buoyant market rally in the final quarter of 2023.

In the corporate sector, Tesla's (NASDAQ: TSLA) stock rose 1% amid reports that the electric car manufacturer is preparing to launch a revamped version of its Model Y from its Shanghai plant.

However, Reuters reported that two US senators have written to Elon Musk, Tesla’s CEO, urging a swift recall of any steering and suspension parts posing safety risks. This comes after an investigation revealed how the company has blamed drivers for failures of known defective components.

In other news, Israel's government approved a $3.2 billion grant for Intel (NASDAQ: INTC) to support the construction of a new $25 billion chip plant in southern Israel, marking the largest investment ever by a company in the country.

The US dollar is on track to wrap up the year with significant setbacks, undergoing a decline following two years of robust advancements. The focus on market expectations of potential Federal Reserve interest rate cuts in the upcoming year remains prominent.

As the year approaches its conclusion, market participants brace for low liquidity and constrained movements until the onset of the New Year. The dollar index, which measures the US currency against six major counterparts, recently touched a fresh five-month low at 100.81. With a 0.5% dip recorded on Wednesday, the index is set for a 2.6% downturn for the year, putting an end to a streak of two consecutive years marked by substantial gains.

Investor focus remains riveted on the potential timing of interest rate reductions by the Federal Reserve, as market signals from the CME FedWatch tool indicate an 89% likelihood of a cut in March 2024. The futures market projects expectations of Fed easing up to 158 basis points in the approaching year.

Nevertheless, some analysts harbor doubts about the Federal Reserve embracing such an assertively dovish position. Despite the unexpected dovish turn taken by the Fed in its December meeting, hinting at possible rate cuts in the next year, other significant central banks like the European Central Bank (ECB) maintain their commitment to keeping rates elevated for an extended duration.

Contrary to this stance, market anticipations include the possibility of as much as 165 basis points in rate cuts from the ECB in the forthcoming year.

The euro, trading at $1.1113, a mere fraction below its five-month peak of $1.1122 reached on Wednesday, is set to conclude the year with a gain of 3.7%, marking its strongest performance since 2020.

Investors are closely watching economic data on jobless claims and pending home sales scheduled for release on Thursday morning.