Treasuries extended their powerful November advance as traders weighed mixed US government debt sales amid bets the Federal Reserve is done with interest-rate hikes.

A US$55 billion auction of five-year bonds saw strong demand, following a soft $54 billion sale of two-year notes. Benchmark 10-year yields dropped eight basis points to around 4.4 per cent. Stocks struggled after a rally that sent the market toward one of its biggest meltups of the last 100 years, putting the S&P 500 near “overbought” levels. Industrial and financial shares underperformed. Amazon.com Inc. led gains in retailers as Cyber Monday kicked off.

The world’s biggest bond market has clawed its way back after spending chunks of 2023 underwater — heading toward its best month since March. The Bloomberg U.S. Treasury Index recently shifted to a positive return for the year as signs of slowing inflation and measured jobs growth unleashed a rally that sent yields tumbling from their highest in more than a decade.

“The market appears to have embraced the idea that slowing economic data will hasten the arrival of market-friendly rate cuts, even though the Fed has continued to telegraph otherwise,” said Chris Larkin at E*Trade from Morgan Stanley. “This week will provide plenty of opportunities for traders to decide whether that cooling trend is intact.”

Traders will be closely watching another batch of economic data this week, including the Fed’s preferred measure of underlying inflation. U.S. sales of new houses fell in October after a downward revision to the prior month as decades-high mortgage rates weighed on demand. The Fed Bank of Dallas manufacturing index for November came in softer than expected.

Bets that policymakers are done with the rate-hiking cycle have fueled a rally in the S&P 500 this month, sinking short-term volatility expectations. While some used the opportunity to buy protection on the cheap, it’s been far from ubiquitous — and calls saying the market environment is getting too placid are on the rise.

“The technical backdrop in the stock market right now is critically important,” said Matt Maley, chief market strategist at Miller Tabak + Co. “This does not mean that we’re about to see an important top in the stock market. It could just mean that we’ll see a mild pullback or even a ‘sideways’ correction at some point in the next week or two to work off this overbought condition.”

Volatility has collapsed, both the bond and equity markets have stabilized while the dollar has fallen significantly — which should be enough for investors to feel cautiously optimistic, according to Mark Hackett at Nationwide.

 “At this point in the year, the direction of the current market – which is positive – is historically the direction the market finishes the year since there are few indicators that could drastically change its route,” Hackett noted. “But, in order for this to be true, we’ll need to see a ‘goldilocks’ approach from the Fed – not too weak and not too strong on policy.”

More than 60 per cent of respondents in the latest MLIV Pulse survey expect stocks to provide better returns than bonds over the next month. That’s the highest level of excitement about equities that the survey registered since the question about the two assets was first asked in August 2022.

Wall Street forecasters have turned more optimistic about the outlook for next year as investor sentiment improves and expectations of a recession are dialed back.

Deutsche Bank Group AG strategists led by Binky Chadha expect the benchmark to hit 5,100 by the end of 2024 — implying gains of about 12 per cent from current levels — against a backdrop of cooling inflation and a rebound in corporate earnings.

Strategists at Bank of America Corp. and BMO Capital Markets also expect the S&P 500 will advance again in 2024, pushing it back over early 2022’s record high. Less optimistic calls from Goldman Sachs Group Inc. and Societe Generale still predict that equity prices will drift a little higher by the end of 2024, even if they remain just shy of the previous peak.

“The markets are priced for a soft landing, and thus for consumer spending to hold up,” said Jason Draho at UBS Global Wealth Management. “We think that view will ultimately be justified. In the meantime, investors are likely to obsess over consumer spending data during the next few weeks, and any market reaction to it should be taken with a grain of salt until we know how the holiday season turned out.”

In earnings, Crowdstrike Holdings Inc. will underscore how businesses are prioritizing cybersecurity after recent high-profile corporate hacks, while Salesforce Inc. and Dell Technologies Inc. are expected to post slower sales growth when they report this week, as overall corporate expenditure tightens.

Elsewhere, gold was back above $2,000. Oil dropped as easing geopolitical tensions and oversupply signals outweighed hopes that OPEC and its allies will deepen production cuts on Thursday.

Corporate Highlights:

• Amazon.com Inc.’s $1.4 billion deal for Roomba maker iRobot Corp. risks being derailed unless the firms fix a list of competition concerns highlighted by the European Union’s antitrust arm.
• Kraft Heinz Co.’s board approves a buyback for up to $3 billion common shares of the maker of Jell-O and Oscar Mayer hot dogs.
• Elliott Investment Management has revived calls for changes at Crown Castle Inc. after disclosing a roughly $2 billion stake in the tower operator.
• Foot Locker Inc., a sports-apparel retailer, was downgraded to sell from neutral at Citigroup Inc.
• Shopify Inc. said merchants set a Black Friday record with a combined $4.1 billion in sales.
• A top-performing European fund manager is calling time on “hype” around weight-loss drugs that has sent Novo Nordisk A/S’s stock price rallying more than 50 per cent this year.
• Volkswagen AG signaled it’s willing to push for staff reductions at its namesake brand to reduce expenses and improve profitability.
• Bayer AG hired several teams of bankers for a strategy simulation game that studied various breakup scenarios, according to people familiar with the matter. Their conclusion: Sweeping changes to the troubled German conglomerate won’t be easy.
• Alibaba Group Holding Ltd. has shuttered its quantum computing research lab, a sign that the Chinese e-commerce and cloud operator is considering more cutbacks to bulk up the bottom line.

Key events this week:

• Meeting of NATO foreign ministers in Brussels, Tuesday-Wednesday.
• ECB governing council member Pablo Hernandez de Cos and Bank of England Deputy Governor Dave Ramsden speak, Tuesday
• U.S. Conference Board consumer confidence, Tuesday
• Fed Governor Chris Waller speaks, Chicago Fed President Austan Goolsbee speak, Tuesday
• New Zealand rate decision, Wednesday
• OECD releases biannual economic outlook, Wednesday
• Eurozone economic confidence, consumer confidence, Wednesday
• Germany CPI, Wednesday
• Bank of England Governor Andrew Bailey speaks, Wednesday
• U.S. wholesale inventories, GDP, Wednesday
• Cleveland Fed President Loretta Mester speaks, Wednesday
• Fed releases its Beige Book, Wednesday
• China non-manufacturing PMI, manufacturing PMI, Thursday
• OPEC+ meeting, Thursday
• Eurozone CPI, unemployment, Thursday
• U.S. personal income, PCE deflator, initial jobless claims, pending home sales, Thursday
• Dell earnings, Thursday
• China Caixin Manufacturing PMI, Friday
• Eurozone S&P Global Manufacturing PMI, Friday
• U.S. construction spending, ISM Manufacturing, Friday
• Fed Chair Jerome Powell to participate in “fireside chat” in Atlanta, Friday
• Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.1 per cent
• The Dow Jones Industrial Average fell 0.2 per cent
• The MSCI World index fell 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.1 per cent
• The euro rose 0.2 per cent to $1.0956
• The British pound rose 0.2 per cent to $1.2629
• The Japanese yen rose 0.5 per cent to 148.63 per dollar

Cryptocurrencies

• Bitcoin fell 2.2 per cent to $36,804.5
• Ether fell 3.8 per cent to $1,995.7

Bonds

• The yield on 10-year Treasuries declined eight basis points to 4.38 per cent
• Germany’s 10-year yield declined 10 basis points to 2.55 per cent
• Britain’s 10-year yield declined seven basis points to 4.21 per cent

Commodities

• West Texas Intermediate crude fell 0.7 per cent to $74.99 a barrel
• Spot gold rose 0.7 per cent to $2,014.05 an ounce