Weekly Wrap

The stock market followed last week's surge with some consolidation activity. The S&P 500 hit another record high on Monday, and closed above 6,000 for the first time, but settled 2.1% lower this week. The index is still 1.5% higher since the election results. 

Selling favored chipmakers and mega caps, but losses were broad based. The equal-weighted S&P 500 closed 1.7% lower than last Friday. Only two S&P 500 sectors closed higher this week while eight sectors logged losses ranging from 1.1% to 5.5%. 

The energy (+0.6%) and financial (+1.4%) sectors were the lone standouts in positive territory while the health care sector (-5.5%) registered the largest loss, followed by the information technology sector (-3.2%). 

Health care related stocks struggled through the week, but exhibited noticeable weakness on Friday after the news that President-elect Trump nominated Robert F. Kennedy, Jr., known as a vaccine skeptic, to lead the Department of Health and Human Services.

Chipmakers were also struggling through the week, and also exhibited noticeable weakness on Friday after fiscal Q1 guidance from Applied Materials (AMAT), a leading chip equipment maker, failed to meet the market's more optimistic expectations.

The overall negative bias this week wasn't extreme compared to last week's surge, and stemmed from concerns over interest rates and speculation that the Fed may be more cautious with rate cuts than the market previously hoped. The 10-yr yield, which briefly reached 4.50%, settled 12 basis points higher than last Friday at 4.43%. The 2-yr yield settled five basis points higher than last Friday at 4.30%.

This price action was related in part to remarks by Fed Chair Powell indicating that the "economy is not sending any signals that we need to be in a hurry to lower rates." This week's data largely corroborated Mr. Powell's comments. 

Total CPI was up 2.6% year-over-year, versus 2.4% in September, and core CPI up 3.3% year-over-year, unchanged from September. Total PPI was up 2.4% year-over-year, versus 1.9% in September, and the index for final demand, less food and energy, was up 3.1% year-over-year, versus 3.0% in September. 

Weekly jobless claims remained below recession-like levels, reflecting ongoing strength in the labor market that may translate to higher consumer spending, piling more pressure on inflation. Retail sales were solid in October and the data was stronger than headline numbers suggest due to upward revisions in the September data.

Monday:

The S&P 500 closed above 6,000 for the first time, up 0.1% from Friday's record close. The Nasdaq Composite rose 0.1% and the Dow Jones Industrial Average logged a 0.7% gain while the Russell 2000 outperformed, jumping 1.4%.

Small cap stocks, along with other areas of the market that were favored last week, benefitted from ongoing optimism around the economy and equity market under the incoming administration and Congress. Buying activity was also related to a fear of missing out on further gains.

Many stocks participated in upside moves.

There wasn't any US economic data on Monday.

Tuesday:

The stock market took a breather after a solid run since the election results last week. Losses were muted, though, compared to gains since last Tuesday's close.

Downside moves were fueled by profit-taking, along with rising market rates. The consumer discretionary sector (-1.1%) was among the worst performers, clipped by losses in Tesla (TSLA) and Home Depot (HD). TSLA shares fell under consolidation efforts and HD shares responded to earnings news.

Gains in some mega cap names provided some offsetting support to the broader equity market.

The New York Fed released its Survey of Consumer Expectations for October was released this morning, but received a muted response from equities.

Tuesday's economic data was limited to the NFIB Small Business Optimism survey, which rose to 93.7 in October from 91.5 in September.

Wednesday:

The stock market had a mixed showing. There wasn't a lot of conviction on either side of the tape due in part to the major indices sitting near all-time highs. The S&P 500, which settled little changed from Tuesday, is about 16 points off its record closing high.

The equal-weighted S&P 500 closed fractionally higher, but market breadth was negative.

Participants were digesting this morning's release of the October Consumer Price Index, which also garnered a mixed response from Treasuries. Total CPI was up 2.6% year-over-year, versus 2.4% in September, and core CPI up 3.3% year-over-year, unchanged from September, stoking worries about inflation persisting above the Fed's 2.0% target.

Rate cut expectations increased slightly in response to the CPI print.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index 0.5% ; Prior -10.8%
• October CPI 0.2% (Briefing.com consensus 0.2%); Prior 0.2%, October Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
  • The key takeaway from the report -- and perhaps calming influence -- is the understanding that the shelter index accounted for more than 65% of the total 12-month increase in core CPI, so the market is watering down the headline inflation print as not being as comprehensively inflationary as it seems. The unadjusted change in the all items less shelter index was just 1.3% year-over-year.
• The Treasury Budget for October showed a deficit of $257.4 billion compared to a deficit of $66.6 billion in the same period a year ago. The October deficit resulted from outlays ($584.2 billion) exceeding receipts ($326.8 billion). The Treasury Budget data is not seasonally adjusted so the October deficit cannot be compared to the September surplus.
  • The key takeaway from the report is that the net interest outlay is running close to $1 trillion on an annualized basis.

Thursday: 

The major indices closed with losses across the board. 

Selling was driven by normal consolidation efforts after a huge run in equities following the election. The Russell 2000 is still 3.4% higher than its close ahead of the election results.

This morning's economic data provided initial fuel for ongoing profit-taking activity. The October Producer Price Index, released at 8:30 ET, reflected rising inflation at the wholesale level while weekly jobless claims remained below recession-like levels, reflecting ongoing strength in the labor market that may translate to higher consumer spending, piling more pressure on inflation.

The data was followed by 3:00 ET remarks by Fed Chair Powell indicating that the "economy is not sending any signals that we need to be in a hurry to lower rates."

Reviewing Thursday's economic data:

• Weekly Initial Claims 217K (Briefing.com consensus 220K); Prior 221K, Weekly Continuing Claims 1.873 mln; Prior was revised to 1.884 mln from 1.892 mln
  • The key takeaway from the report is rooted in the low level of initial jobless claims -- a leading indicator -- which suggests employers are feeling reasonably good about the economic outlook, as they appear reluctant to layoff employees.
• October PPI 0.2% (Briefing.com consensus 0.2%); Prior was revised to 0.1% from 0.0%, October Core PPI 0.3% (Briefing.com consensus 0.3%); Prior 0.2%
  • The key takeaway from the report is that there was inflation in this report -- not disinflation -- at the wholesale level. That will stir concerns about PCE inflation sticking at higher levels and the Fed not cutting rates as much as previously envisioned.

Friday:

The stock market closed with solid losses. 

Many stocks contributed to index losses, sinking on concerns over interest rates and speculation that the Fed may be more cautious with rate cuts than the market previously hoped. 

The market's expectations for a rate cut at the December FOMC meeting have shifted.

Large-cap technology stocks, especially semiconductor-related names, suffered outsized declines compared to the broader equity market.

Reviewing Friday's economic data:

• The New York Fed Empire State Manufacturing Survey for November checked in at 31.2 (Briefing.com consensus 3.3) following a -11.9 reading for October. A number above 0.0 is indicative of expansion. The New Orders Index surged to 28.0 from -10.2.
  • The key takeaway from the report is that the November reading is the highest reading in nearly three years; moreover, firms remained optimistic that conditions would continue to improve in the months ahead.
• Total retail sales increased 0.4% month-over-month in October (Briefing.com consensus 0.3%) following an upwardly revised 0.8% increase (from 0.4%) in September. Excluding autos, retail sales increased 0.1% month-over-month (Briefing.com consensus 0.2%) following an upwardly revised 1.0% increase (from 0.5%) in September.
  • The key takeaway from the report is that the upward revisions for September make the October results better than they appear since the growth is coming on top of a higher base. With month-over-month increases for nonstore retailers (+0.3%), food services and drinking places (+0.7%), electronics and appliance stores (+2.3%), and building materials and garden equipment and supplies dealers (+0.5%), it is clear that the consumer continues to embrace discretionary spending activity.
• Import prices increased 0.3% month-over-month in October and were up 0.8% year-over-year. Excluding fuel, import prices were up 0.2% month-over-month and up 2.3% year-over-year. Export prices increased 0.8% month-over-month and were down 0.1% year-over-year. Excluding agricultural products, export prices jumped 0.6% month-over-month and were flat year-over-year.
  • The key takeaway from the report is that prices picked up on a monthly basis following declines in August and September.
• Total industrial production decreased 0.3% month-over-month in October (Briefing.com consensus -0.3%) following a downwardly revised 0.5% decline (from -0.3%) in September. The capacity utilization rate fell to 77.1% (Briefing.com consensus 77.3%) from a downwardly revised 77.4% (from 77.5%) in September. Total industrial production declined 0.3% yr/yr while the capacity utilization rate was 2.6 percentage points below its long-run average.
  • The key takeaway from the report is that industrial production in October was pressured by two extraordinary factors, but even excluding those factors, it was still relatively weak in October. The Boeing strike held down total industrial production growth by an estimated 0.2 percentage point in October while Hurricane Milton and the lingering effects of Hurricane Helene reduced industrial production growth by 0.1 percentage point.
• September Business Inventories increased 0.1% month-over-month (Briefing.com consensus 0.2%) following a 0.3% increase in August.