As the final meeting of the Federal Reserve approaches this year, the U.Sstock market finds itself in a plateau, reflecting a cautious sentiment among investorsThe broader indices have seen mixed performance, with the Nasdaq Composite index being the only one to post a gain of over 0.3% in the past weekIn contrast, the S&P 500 index fell approximately 0.6%, while the healthcare sector's downturn has led to a near 2% decline in the Dow Jones Industrial AverageThis marks the longest losing streak for the Dow, hitting seven straight days of losses—its worst performance since February 2020.

This week is pivotal for investors as it is packed with significant economic updates ahead of the Fed’s interest rate decision on December 18. Expectations are rife that the Fed will opt for a 25 basis points reduction in ratesInvestors will be closely monitoring Fed Chair Jerome Powell’s remarks during his press conference scheduled for Wednesday at 2:30 PM Eastern Time, especially concerning the projections for 2025.

Economic indicators due for release this week include November's retail sales figures, the Personal Consumption Expenditures (PCE) index—which is the Fed's favored inflation measure—along with data showcasing activity within the manufacturing and services sectors.

On the corporate front, key players like Micron Technology, Nike, FedEx, and Carnival Corporation are anticipated to release their quarterly earnings reports

These will offer further insight into the economic landscape, particularly as holiday shopping trends kick off.

According to the FedWatch tool at the Chicago Mercantile Exchange (CME), the markets are pricing in about a 97% chance of a rate cut on WednesdayHowever, with the latest economic data illustrating a steady growth trajectory for the U.Seconomy, a resilient job market, and the challenges of achieving the Fed’s 2% inflation target, many analysts are beginning to adjust their forecastsThe anticipated easing may be less aggressive than earlier projections for 2025.

One of the crucial updates investors will be sifting through pertains to the Fed's latest economic projections summary (SEP). The summary includes the “dot plot,” a visual representation of policymakers’ expectations for future interest rates, alongside Powell's comments during his briefing.

When the Fed released its dot plot back in September, the market had expected the median federal funds rate by the end of 2025 to be between 3.25% and 3.5%. However, according to Bloomberg data, the expectations have since shifted to a scenario where only two rate cuts are likely next year, rather than the previously anticipated four by 2025 as projected in September.

J.P

• China's Economic Shift Sparks Controversy Amid Global Crisis
• Dollar Undergoes Major Transformation
• VW's Troubles Reflect German Manufacturing Crisis
• Don't Expect Gold in Unlikely Places
• This Week's Fed Rate Cut: What’s Ahead

Morgan's Chief U.SEconomist, Michael Feroli, noted in a report to clients, "We expect that this year's economic forecasts will reflect stronger growth and more robust inflation, adjusting the median rate forecast to three cuts next year, down from four in September."

Bank of America economist Aditya Bhave also highlighted that Powell might address a “slowing pace of rate cuts” during his press conference, hinting at a potential pause in the rate reduction cycle by January.

Turning to retail data, ahead of Wednesday's Fed decision, officials will receive the latest insights into consumer health via the November retail sales reportEconomists estimate retail sales in October increased by about 0.5% month-on-monthThe control group of retail sales, which excludes volatile categories like gasoline and plays a direct role in GDP calculations, is expected to rise by 0.4%.

Economists at Bank of America's U.S

economic team anticipate that this report will reflect a strong start to the holiday shopping seasonAccording to a report they shared with clients last Friday, “During Thanksgiving, online retail spending was particularly vigorousIn fact, despite Thanksgiving being later, holiday spending has already exceeded last year's cumulative levelsTherefore, we expect a robust November retail sales report with growth pegged at 0.5%, excluding auto sales and core control categories.”

In terms of inflation updates, last week brought consumer price index (CPI) and producer price index (PPI) figures that indicated little progress toward the Fed's 2% inflation targetNevertheless, many economists believe there are encouraging signals in the details of these reports, suggesting that the inflation indicators to be released by the Fed on Friday may not be as alarming as once feared.

Economists predict that the year-on-year "core" Personal Consumption Expenditures (excluding more volatile food and energy categories) will reach 2.9% for November, up from 2.8% in October

However, they predict a 0.2% growth month-on-month, which would be a slight decline from the 0.3% increase recorded in October.

Michael Gapen, Chief U.SEconomist at Morgan Stanley, remarked in a client report last Friday, “In our view, the inflation data for November should offer some comfort that the disinflation process is continuingWhile both overall and core CPI readings came in slightly higher than we expected… the details of the report support ongoing declines in inflation in the near term.”

Meanwhile, the S&P 500 index has seen more stocks declining than advancing over the past ten trading days, marking the longest streak since September 2001. Nevertheless, throughout the month leading up to December, the S&P 500 has managed a small gain of approximately 0.3%. Conversely, the equal-weighted S&P 500 index has faced a decline of over 3%, a reflection that it is less influenced by the performance of larger cap stocks.

Investor sentiment remains cautious, with some key warning signs about the overall health of the market

"So far, this has been a cry for help, or only a case of breadth weakness," wrote Steve Sosnik, Chief Strategist at Interactive Brokers in a report last Thursday"However, some symptoms, if not addressed, could lead to more significant issues.”

Sosnik explains that the recent rebound in the largest tech stocks has been critical in stabilizing the benchmark indicesLast Wednesday, the Nasdaq Composite index closed above 20,000 for the first time in history, buoyed by impressive gains from companies like Alphabet, Tesla, Meta, and Amazon.

Kevin Gordon, a Senior Investment Strategist at Charles Schwab, highlighted that this market trend comes as investors continue to digest sticky inflation signals and that anticipated rate cuts by the Fed could be less aggressive than once thought, despite not being particularly unexpected next year.

Gordon noted, "If rates remain elevated for a longer period than the market widely anticipates, companies that can net gains from rising rates may perform well." He indicated that many of the "Magnificent Seven" tech stocks could fall into this category.