Fed's preferred inflation gauge highlights holiday-shortened trading week: What to know this week

Stocks drifted higher leading into the shortened trading week, which includes the Thanksgiving holiday.

The Dow Jones Industrial Average (^DJI) gained nearly 2% for the past week, while the S&P 500 (^GSPC) and the tech-heavy Nasdaq Composite (^IXIC) added over 1.5%.

This week, a fresh reading on the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, will highlight the economic calendar. Updates on third quarter economic growth and housing activity are also on the schedule.

In corporate news, quarterly results from Zoom (ZM), Dell (DELL), Best Buy (BBY), CrowdStrike (CRWD), and Macy's (M) are likely to catch investor attention.

Markets will be closed on Thursday for Thanksgiving, and Friday's trading session will end early at 1 p.m. ET.

Price check

Recent sticky inflation readings have raised questions about whether the Fed will cut interest rates in December and how much the central bank will lower rates over the next year.

Earlier this month, the "core" Consumer Price Index (CPI), which strips out the more volatile costs of food and gas, showed prices increased 3.3% in October for the third consecutive month. Meanwhile, the "core" Producer Price Index (PPI) revealed prices increased by 3.1% in October, up from 2.8% the month prior and above economist expectations for a 3% increase.

Wall Street Analysts Bullish on S&P 500 Outlook for 2025

Wall Street research firms have begun rolling out their 2025 forecasts for the equity market, with most projecting a bullish year ahead for the S&P 500. According to estimates tracked by Yahoo Finance, the benchmark index is expected to end 2025 between 6,400 and 7,000.

However, DataTrek co-founder Nicholas Colas advises caution in interpreting these projections. While many targets align with the S&P 500's historical average annual return of approximately 11%, this figure rarely materializes in a single year due to significant market volatility.

The Reality Behind Average Returns

"The mean long-run return is a comforting anchor for expectations, but the range around that average is very wide," Colas noted. He highlighted that the standard deviation from the historical average return of 11.7% is 19.6 percentage points. This means that annual returns ranging from a 7.8% decline to a 31.2% increase fall within the realm of historical norms.

Colas emphasizes that Wall Street’s recent optimism is more about market direction than specific targets. "The most important issue for anyone invested in the U.S. equity market is the stability of the U.S. economy in 2025," he wrote.

Indicators for 2025Positive 

Colas remains optimistic about the year ahead, citing several factors that could support market growth:

Resilient Labor Market: Continued strength in employment levels.

Lower Interest Rates: Easing monetary policy expected to spur economic activity.

Pro-Business Policies: An incoming administration poised to introduce tax cuts and deregulation.

Given these dynamics, Colas believes the S&P 500 is well-positioned for a strong performance in 2025.

A Bullish Prediction

"We remain positive and believe the S&P 500 can rally more than its long-term average over the coming year," Colas stated. "The setup going into 2025 more closely resembles exceptionally strong years rather than weak ones."

Colas projects the S&P 500 will rise by approximately 15% in 2025, ending the year at 6,840—a level consistent with Wall Street's broader optimism for the equity market.