Weekly Wrap

The Nasdaq Composite closed above 20,000 for the first time this week, settling 0.3% higher than last week. The S&P 500 and Dow Jones Industrial Average dropped 0.6% and 1.8%, respectively, this week. The Russell 2000 underperformed its peers, losing 2.6%.

There were festering valuation concerns in play that also mixed with chatter of the market being overbought on a short-term basis and due for some consolidation. Market participants used rising market rates as an excuse to engage in profit-taking activity. 

The 10-yr yield jumped 25 basis points to 4.40% and the 2-yr yield jumped 14 basis points to 4.24%. This price action followed disappointing inflation readings and data indicating some softening in the labor market. 

Wednesday's release of the November Consumer Price Index (CPI) report met expectations and reinforced the market's anticipation of an upcoming rate cut. Total CPI moved higher on a year-over-year basis to 2.7% from 2.6% and core CPI was at 3.3%, which is still above the Fed's 2% inflation target.

Thursday's release of the November Producer Price Index (PPI) report showed rising inflation at the producer level, which doesn't mix with the market's view of ongoing rate cuts. The index for final demand was up 3.0% year-over-year versus 2.6% in October. Excluding food and energy, the index for final demand was up 3.4% year-over-year (3.45% unrounded versus 3.37% in October).

Market participants also received weekly initial jobless claims, which increased to 242,000 from 225,000 and continuing claims, which increased to 1.886 million from 1.871 million. 

Expectations for a 25 basis points rate cut at the FOMC meeting next week increased in response to the data. The fed funds futures market now sees a 95.3% probability of a 25 basis points cut next week, up from 86.0% one week ago, according to the CME FedWatch tool.

In corporate news, Oracle (ORCL) declined 9.6% this week after a disappointing fiscal Q2 earnings report, missing the consensus EPS estimate compiled by FactSet, and issuing lower-than-expected guidance for fiscal Q3. Adobe's (ADBE) FY25 guidance disappointed investors while shares of Broadcom (AVGO) rallied 25.2% this week after solid results and pleasing guidance. 

In other news, the ECB's cut its key policy rates by 25 basis points, as expected.

Monday:

The S&P 500 and Nasdaq Composite were unable to follow up Friday's record highs with new record highs today. They opened the day lower and never managed to reclaim a posture in positive territory as buyers lacked enthusiasm ahead of several key events this week, including Oracle's (ORCL) earnings report after the close, the November Consumer Price Index on Wednesday, the November Producer Price Index on Thursday, and the ECB policy meeting on Thursday.

Beyond those considerations, buyers were stifled by a weak showing from NVIDIA (NVDA ), which fell on a Bloomberg report of China opening an antimonopoly investigation, and festering valuation concerns that also mixed with chatter of the market being overbought on a short-term basis and due for some consolidation.

The retreat was orderly and narrow at first, but it eventually cut across the market.

Reviewing Monday's economic data:

• October Wholesale Inventories increased 0.2% month-over-month (Briefing.com consensus 0.2%) following a 0.2% decline in September.

Tuesday:

The stock market extended this week's losses, reflecting ongoing profit-taking after last week's record highs and a huge run since the start of the year. The three major indices spent most of the morning near their prior closing levels before selling picked up in the afternoon.

The S&P 500 (-0.3%), Nasdaq Composite (-0.3%), and Dow Jones Industrial Average (-0.4%) settled near their worst levels of the day. Downside moves in the major indices coincided with some mega caps reversing early gains.

Significant moves were reserved for stocks with specific catalysts. Oracle (ORCL) declined 9.6% this week after a disappointing fiscal Q2 earnings report, missing the consensus EPS estimate compiled by FactSet, and issuing lower-than-expected guidance for fiscal Q3.

Kroger (KR) was another story stock, jumping after a report indicating that Kroger's M&A deal with Albertson's (ACI) was blocked by a judge.

Reviewing today's economic data:

• November NFIB Small Business Optimism 101.7; Prior 93.7
• Q3 Productivity-Rev. 2.2% (Briefing.com consensus 2.2%); Prior 2.2%, Q3 Unit Labor Costs-Rev. 0.8% (Briefing.com consensus 1.9%); Prior 1.9%
  • The key takeaway from the report is the inflation-friendly indicator of unit labor costs rising in more modest proportions in the third quarter.

Wednesday:

The S&P 500 (+0.8%) and Nasdaq Composite (+1.8%), which closed above 20,000 for the first time, settled near their session highs. The Russell 2000 (+0.6%) also logged a gain while the Dow Jones Industrial Average fluctuated around its previous close, settling 0.2% lower. Market breadth was broadly positive, reflecting a fairly broad advance, but gains in mega-cap stocks had a disproportionate impact on the S&P 500 and Nasdaq Composite.

Big winners in the mega-cap space included Amazon.com (AMZN), Alphabet (GOOG), Meta Platforms (META), and Tesla (TSLA), all of which hit new record highs today.

Investors are reacting to the November Consumer Price Index (CPI) report, which met expectations and reinforced the market's anticipation of an upcoming rate cut. Total CPI moved higher on a year-over-year basis to 2.7% from 2.6% and core CPI was at 3.3%, which is still above the Fed's 2% inflation target.

Earnings reports from several companies since yesterday's close sparked mixed reactions from investors.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index 5.4%; Prior 2.8%
• November CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.2%, November Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.3%
  • There are two key takeaways from the report. The first is that the report wasn't worse than feared. It was right in-line with expectations; therefore, it did not upset the market's view that the Fed will cut rates another 25-basis points at next week's FOMC meeting. The second key takeaway is in the breakdown of the shelter index (+0.3%), which included the smallest increases for owners' equivalent rent (+0.2%) and the index for rent (+0.2%) since April 2021 and July 2021, respectively. With the lag effect of shelter costs on CPI computations, assumptions are being made that this variable will continue to factor favorably in future CPI reports and help temper future inflation readings.
• Weekly EIA crude oil inventories had a draw of 1.43 million barrels; prior draw of 5.07 million barrels
• The Treasury Budget for November showed a deficit of $366.8 billion compared to a deficit of $314.0 billion in the same period a year ago. The November deficit resulted from outlays ($668.5 billion) exceeding receipts ($301.8 billion). The Treasury Budget data are not seasonally adjusted so the November deficit cannot be compared to the October deficit of $257.5 billion.
  • The key takeaway from the report is its worsening condition, which was driven in part by a large outlay for net interest that exceeded the outlay for national defense.

Thursday:

The S&P 500 (-0.5%), Nasdaq Composite (-0.7%), and Dow Jones Industrial Average (-0.5%) closed with losses. The Russell 2000 underperformed other major indices, dropping 1.3%. An overall downside bias was reflected in negative market breadth, which favored decliners by a 3-to-1 margin at the NYSE and by a 5-to-2 margin at the Nasdaq.

Selling interest was related to normal profit-taking amid lingering concerns about valuations and the market being overbought on a short-term basis. There were many factors in play that sparked selling interest, or kept buying activity in check. These factor included disappointing FY25 guidance from Adobe (ADBE) and weaker-than-expected economic data, which sent Treasury yields higher.

This morning's economic reports revealed a softening labor market and rising inflation at the producer level. Weekly initial jobless claims increased to 242,000 from 225,000 and continuing claims increased to 1.886 million from 1.871 million.

The November Producer Price Index (PPI) report showed the index for final demand was up 3.0% year-over-year versus 2.6% in October. Excluding food and energy, the index for final demand was up 3.4% year-over-year (3.45% unrounded versus 3.37% in October).

Reviewing Thursday's economic data:

• Weekly Initial Claims 242K (Briefing.com consensus 220K); Prior was revised to 225K from 224K, Weekly Continuing Claims 1.886 mln; Prior 1.871 mln
  • The key takeaway from the report is that initial jobless claims are the highest they have been since mid-October, which will contribute to the belief that the labor market is softening -- a softening the Fed would like to prevent from becoming anything more by lessening its policy restraint.
• November PPI 0.4% (Briefing.com consensus 0.3%); Prior was revised to 0.3% from 0.2%, November Core PPI 0.2% (Briefing.com consensus 0.2%); Prior 0.3%
  • The key takeaway from the report is that inflation at the producer level is moving in the wrong direction, evidenced by the large jump in goods inflation, particularly food, that raises the potential for pass-through pressures for consumers.

Friday:

The S&P 500 (flat), Nasdaq Composite (+0.1%), and Dow Jones Industrial Average (-0.2%) closed within 0.2% of their prior closing levels while the Russell 2000 underperformed, dropping 0.6%. The S&P 500 and Nasdaq Composite initially moved higher, driven by strong earnings and guidance from Broadcom (AVGO) that buoyed sentiment in the semiconductor sector.

Rising market rates kept buying efforts in check in the rest of the equity market. The 10-yr yield jumped eight basis points to 4.40% and the 2-yr yield settled five basis points higher at 4.24% ahead of next week's expected rate cut. The 10-yr yield is 25 basis points higher than last Friday and the 2-yr yield is 14 basis points higher for the week.

While the semiconductor sector remained a bright spot amid an otherwise sluggish session, some key chipmakers, including NVIDIA (NVDA), reversed earlier gains.

Reviewing Friday's economic data:

• November Export Prices 0.0%; Prior was revised to 1.0% from 0.8%
• November Export Prices ex-ag. 0.1%; Prior was revised to 0.8% from 0.6%
• November Import Prices 0.1%; Prior was revised to 0.1% from 0.3%
• November Import Prices ex-oil 0.0%; Prior 0.2%