Weekly Wrap

Stocks soared on this busy week that featured the release of a big batch of quarterly results, another rate cut from the FOMC, and the outcome of congressional and presidential elections..

The day after the election, the Dow Jones Industrial Average gained more than 1,500 points, the Russell 2000 soared 5.8%, the Nasdaq Composite surged 3.0%, and the S&P 500, with a 2.5% gain, logged its best post-election performance ever!

There was the relief factor, with participants enthused that this won't be a contested election, and there was the growth factor, with participants thinking president-elect Trump's aim to lower tax rates and decrease regulations will foster economic growth that remains above potential.

That view of policy matters manifested itself in a variety of ways:

• Small-cap stocks soared
• Financial stocks soared
• The U.S. dollar surged against other major currencies
• Bitcoin prices moved noticeably higher
• Cyclical sectors outperformed

There were a lot of "big winners" this week. Tesla (TSLA) was among them, capitalizing handsomely on the idea that Elon Musk's strong support of Donald Trump will be an added boon for the company. Shares settled 29.0% higher than last Friday. 

Thursday's FOMC policy announcement didn't deter the market rally. The unanimous FOMC vote to cut the target range for the fed funds rate by 25 basis points to 4.50-4.75% was largely expected.

The response in equities wasn't related so much to anything the Fed Chair said about policy, but rather more about what he didn't say -- or imply. Specifically, he didn't implicitly remove the possibility of another rate cut at the December FOMC meeting. Mr. Powell reiterated, as we thought he might, that policy is not on a preset course and that decisions will be made on a meeting-by-meeting basis.

The Fed chair seemed to be marveling at the strength of the economy and the Fed's policy settings, both of which he thinks are in a very good place. He deferred answering questions about how president-elect Trump's policy proposals might affect the Fed's decision-making, noting simply the Fed can't really model for them because it doesn't know any of the specifics yet.

As an aside, he sounded terse indicating he wouldn't resign his position if president-elect Trump asked him to, and said simply that the president firing or demoting him is not permitted under the law.

In other news, NVIDIA (NVDA) and Sherwin-Williams (SHW) replaced Intel (INTC) and Dow Inc. (DOW) in the Dow Jones Industrial Average starting on Friday, November 8.

Monday:

The stock market had a mixed showing. There wasn't a lot of conviction from buyers or sellers in front of Tuesday's election. The major indices ultimately closed with declines ranging from 0.3% to 0.6%, but off session lows. The Russell 2000 outperformed its peers, closing 0.4% higher.

Losses in mega caps and chipmakers had an outsized impact on index performance. The equal-weighted S&P 500 settled fractionally higher than Friday.

Reviewing Monday's economic data:

• Factory orders declined 0.5% month-over-month in September (Briefing.com consensus -0.4%) following a downwardly revised 0.8% decline (from -0.2%) in August. Excluding transportation, factory orders rose 0.1% on the heels of a 0.2% decline in August. Shipments of manufactured goods fell 0.4% in September following a 0.7% decline in August.
  • The key takeaway from the report is that transportation equipment orders (-3.1%), led by weakness in nondefense aircraft and parts orders (-22.7%) and defense aircraft and parts orders (-23.7%), were the primary basis for the decline in factory orders in September.

Tuesday:

The stock market had a solid showing on Election Day. The S&P 500 jumped 1.2%; the Nasdaq Composite gained 1.4%; the Dow Jones Industrial Average settled 0.4% higher; and the Russell 2000 rose 1.9%.

Stocks were already moving higher before buying increased in response to a jump in the ISM Services PMI for October that should bode well for economic and earnings growth. The positive bias was also related to relief that some unknowns about the election will be cleared up before trading begins on Wednesday.

Outsized moves are mostly reserved for names with specific catalysts. Palantir Technologies (PLTR 51.13, +9.72, +23.5%), DuPont (DD 85.67, +3.82, +4.7%), GlobalFoundries (GFS 41.37, +5.36, +14.9%) registered big gains in response to earnings.

Reviewing Tuesday's economic data:

• The September Trade Balance Report at 8:30 a.m. ET showed a widening in the trade deficit to $84.4 billion (Brieifng.com consensus -$74.0 billion) from a revised $70.8 billion (from -$70.4 billion) in August. That widening was the result of exports being $3.2 billion less than August exports and imports being $10.3 billion more than August imports.
  • The key takeaway from the report is that the imbalance between exports and imports is indicative of a U.S. economy that is running stronger than its global counterparts.
• The S&P Global US Services PMI declined to 55.0 in the final October reading from 55.2.
• The ISM Services PMI increased to 56.0% in October (Briefing.com consensus 53.5%) from 54.9% in September. That is the highest reading since July 2022. The dividing line between expansion and contraction is 50.0%, so the October reading reflects services sector activity accelerating from September.
  • The key takeaway from the report is that the pace of expansion in the largest sector of the U.S. economy accelerated to a two-year high with employment activity returning to expansion after a brief contraction in September. The Backlog Index showed a deepening contraction, which could slow the pace of expansion in the coming months.

Wednesday:

There was no mistaking that the stock market thought the election outcome will be good for growth. Following the news that Donald Trump won the presidential election, and polling indications that suggest the GOP is likely to hold a majority position in the House and Senate, the major indices operated in rally mode on Wednesday.

There was the relief factor, with participants enthused that this won't be a contested election, and there was the growth factor, with participants thinking president-elect Trump's aim to lower tax rates and decrease regulations will foster economic growth that remains above potential.

That view of policy matters manifested itself in a variety of ways:

• Small-cap stocks soared
• Financial stocks soared
• The U.S. dollar surged against other major currencies
• Bitcoin prices moved noticeably higher
• Cyclical sectors outperformed
• Treasuries were sold, sending yields higher

Today's active buying interest sent the Dow Jones Industrial Average, Nasdaq Composite, S&P 500, and S&P 400 to record highs.

There were a lot of "big winners" today. Tesla (TSLA) was among them, capitalizing handsomely on the idea that Elon Musk's strong support of Donald Trump will be an added boon for the company.

Wednesday's economic data was limited to the MBA's weekly Mortgage Applications Index, which declined 10.8% with refinance applications down 19% and purchase applications down 5%.

Thursday:

The S&P 500 (+0.7%) and Nasdaq Composite (+1.5%) moved further into record territory while the Dow Jones Industrial Average closed little changed from Wednesday. The Russell 2000 declined 0.4% after Wednesday's 6% surge.

The S&P 500 and Nasdaq Composite were higher through the whole session, hitting session highs in response to Fed Chair Powell's press conference, which followed the unanimous FOMC vote to cut the target range for the fed funds rate by 25 basis points to 4.50-4.75%, as expected.

The major indices ultimately settled below session highs while Treasury yields, which moved to session lows during the press conference, settled near intraday lows. The 10-yr yield dropped nine basis points to 4.34% and the 2-yr yield dropped five basis points to 4.22%.

Reviewing Thursday's economic data:

• Weekly Initial Claims 221K (Briefing.com consensus 222K); Prior was revised to 218K from 216K, Weekly Continuing Claims 1.892 mln; Prior was revised to 1.853 mln from 1.862 mln
  • The key takeaway from the report is essentially the same as last week. Layoff activity remains calm, but for employees who do get laid off it is more challenging to find a new job, which is a reality consistent with a softening labor market.
• Q3 Productivity-Prel 2.2% (Briefing.com consensus 2.3%); Prior was revised to 2.1% from 2.5%, Q3 Unit Labor Costs-Prel 1.9% (Briefing.com consensus 0.5%); Prior was revised to 2.4% from 0.4%
  • The key takeaway from the report is that productivity growth is helping to keep labor costs in check.
    September Wholesale Inventories -0.2% (Briefing.com consensus -0.1%); Prior was revised to 0.2% from 0.1%

Friday:

The stock market closed this huge week on an upbeat note. The S&P 500 (+0.4%) traded above 6,000 for the first time and the Dow Jones Industrial Average (+0.6%) traded above the 44,000 mark for the first time before settling off session highs.

The Nasdaq Composite settled little changed from yesterday, weighed down by losses in some mega cap names.

The 10-yr yield dropped four basis points today to 4.31%.

Reviewing Friday's economic data:

• November Univ. of Michigan Consumer Sentiment - Prelim 73.0 (Briefing.com consensus 70.6); Prior 70.5
  • The key takeaway from the report is that the responses were tabulated before the election results and reveal that consumers were already feeling more upbeat about their income prospects and short-run business conditions.