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Unless there’s an unexpected post-Thanksgiving upset, the U.S. stock market appears set for a robust November rally, with historical trends suggesting momentum will likely continue into the year-end. Key drivers include a growing economy, improved earnings, a resilient consumer base, moderating inflation, and the belief that the Federal Reserve has concluded its interest rate hikes.

While acknowledging technical overbought conditions that might lead to short-term consolidation, experts like Michael Arone express optimism about a strong final six weeks of 2023. The S&P 500’s impressive 18% year-to-date gain reinforces this sentiment, with historical data indicating a 76.7% probability of further gains in December when the benchmark has risen at least 15% through November.

However, the current rally has been marked by narrow leadership, primarily fueled by mega-cap tech stocks, raising concerns about market breadth and overreliance on a few sectors. Despite this, year-end window dressing and optimism surround high-performing stocks.

Some investors find encouragement in the November rally’s positive signs for overlooked market segments, such as international companies and small-caps, which have shown signs of life after underperforming throughout 2023. This suggests a level of opportunism among investors, offering optimism that the broader equity market isn’t on the verge of a downturn.

While stocks ended the week on a positive note, experts caution against chasing big-cap winners at their current high valuations. The article concludes by highlighting potential challenges in the coming months, including the lagged effects of previous tightening by the Federal Reserve and the fading impact of fiscal stimulus. Despite economic data remaining resilient, the path to stock market gains may become rockier as 2024 approaches, with changing investor expectations and a higher bar for corporate performance.

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