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Weekly Summary: Stocks’ Rally and Oil Prices Decline Could Be Put on Hold

This was an excellent week for the stock market. The S&P 500 broad market index rose by 2.5% to 4520 points. This move extends the stock rally to 9.8% since October 31. Would the market hold this straddle? 

The most of the S&P 500 rally was recorded on Tuesday when the October inflation data was published in the United States. The index surged by 2.2% on the news. The U.S. headline inflation slowed down to 3.2% YoY from a 3.7% YoY in September, which is the first slowdown since mid-summer. On a monthly basis, prices came in flat. This could be also interpreted as a positive sign of halting price pressure, when compared to a 0.4% up a month ago. The core CPI, excluding its most volatile food and energy components, continued to grow by 0.2% MoM, leading to 4.0% YoY, only a minor correction from 4.1% in the previous month. Latter figures amplified disinflationary processes in the U.S. 

The U.S. 10-year Treasuries yields fell to 4.43%, the lowest since September 2022. This is the predominant vehicle of the current optimism. Borrowing costs stabilised above 4.50% on Wednesday putting the stock rally on halt. Borrowing costs resume falling down on declining crude prices. They unexpectedly fell by 5%, likely on a combination of factors. The U.S. Energy Information Agency declared crude inventories up by 3.6 million barrels after a huge upside of 13.9 million I the previous week. Consensus was at +1.7 million. Initial jobless claims jumped to two-year highs that indicates a continuous cooling of the U.S. economy with a potential lower-than-expected demand for energies.

Even taken together these factors were unlikely to push prices down that much. Some sell-offs by algorithmic funds could contribute to the decline. Most import is to monitor the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, to these developments. The OPEC+ will hold a meeting on Sunday next week. 

The sustainability of the stock rally in the U.S. is more and more questionable. The "overbought" tension of the S&P 500 index is mounting. The benchmark already went far above the upside targets of the next week at 4430-4450 points. The index will get a reversal opportunity starting December 1. The situation get more complicated as the aggressive upside formation that pushed the index up on Tuesday has exhausted. So, the benchmarks is likely to stabilise during the next week or it could get into correction. This idea might properly correspond with a short trading week in the United States, where Thanksgiving Day will be celebrated on November 23.

Thus, the last week of November become extremely important to mark a possible Christmas rally. If the index resumes to the upside the rally may bring the benchmark to 4850-4950, an all-time highs. Otherwise, the index would scale back significantly.

Oil market prices fell dramatically after diving below the support of $83.00-85.00 per barrel of Brent crude. They hit $77.10 per barrel and may continue to go down to the next support at $74.00-76.00 per barrel. Crude prices may have a chance to recover within the next 6 weeks starting next week.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. Prices unsuccessfully tested the resistance at $2000-2020 per ounce, and rolled back to the support at $1910-1930. After an imperfect test of this support, prices went up towards the resistance at $1990-2010 per ounce. They hit the lower margin of this zone, but they will need more serious escalation in the Middle East for a breakthrough. 

The Greenback reached its primary correction targets at 1.08500-1.09500 against the Euro. Any further correction is largely associated with a Christmas stock rally. Alternatively, the Greenback could resume is strengthening towards the parity with the single currency.