Weekly Wrap

It was a big week for the stock market. We mean that that figuratively more so than literally given that the mega-cap stocks dominated this week's trading action. Their influence was plain to see in the outperformance of the market cap-weighted S&P 500 (+1.0%) versus the equal-weighted S&P 500 (-1.3%).

Led by the likes of Apple (AAPL), NVIDIA (NVDA), Microsoft (MSFT), Tesla (TSLA), Amazon.com (AMZN), and the usual cohort, the Vanguard Mega-Cap Growth ETF (MGK) surged 3.7% this week. It drew some energy from an AI trade that was ignited by Salesforce's (CRM) encouraging outlook for its Agentforce AI system for enterprises.

Separately, it was a momentous week for Bitcoin, which topped $100,000 for the first time ever on Thursday. The stock market took notice of that move (how could it not?) but, notably, it did not see an animal spirits trade in its wake. Stocks languished on Thursday, albeit after a run that saw the S&P 500 score 11 gains in 12 sessions and set several new record highs in the process.

The latter point notwithstanding, this was not a week accented with broad-based buying interest. The broader market took a backseat to the mega-cap trade and gave in to some consolidation activity.

There were only three S&P 500 sectors that finished higher this week. The upside for the market is that they carried a lot of weight and registered big gains. The consumer discretionary sector (+5.9%) led the charge followed by communication services (+4.1%), and information technology (+3.4%).

The other eight sectors had a tough go of it. The consumer staples sector, which declined 0.8%, lost the least amount of ground. Otherwise, losses ranged from 1.8% (financials) to 4.6% (energy).

Similarly, while the market cap-weighted S&P 500 gained 1.0% (rounding up), the Russell 2000 declined 1.1% and the S&P Midcap 400 Index fell 1.0%.

On a brighter note, the S&P 500 and Nasdaq Composite both finished the week at record closing highs, holding their bullish disposition after a November employment report that was neither too hot nor too cold. In effect, it was just right for the soft landing/no landing view that left the market hopeful about continued earnings growth and another rate cut at the December 17-18 FOMC meeting.

Treasuries also had another winning week. The 2-yr note yield fell six basis points this week to 4.10% while the 10-yr note yield dropped three basis points to 4.15%.

• Nasdaq Composite: +3.3% for the week / +32.3% YTD
• S&P 500: +1.0% for the week / +27.7% YTD
• S&P Midcap 400: -1.0% for the week / +19.8% YTD
• Russell 2000: -1.1% for the week / +18.8% YTD
• Dow Jones Industrial Average: -0.6% for the week / +18.4% YTD

Monday:

The S&P 500 (+0.2%) and Nasdaq Composite (+1.0%) started December with record highs while the Dow Jones Industrial Average declined 0.3%. The mixed action at the index level reflected a lack of strong conviction on either side of the tape. Decliners led advancers by a 4-to-3 margin at the NYSE, but advancers had an 11-to-10 lead over decliners at the Nasdaq.

Gains in chipmakers, which responded to better-than-feared export restrictions on semiconductors and semiconductor equipment to China, and in mega caps propelled the S&P 500 and Nasdaq Composite higher.

This price action also drove the S&P 500 communication services (+1.5%), consumer discretionary (+1.1%), and information technology (+1.0%) sectors to close higher while the remaining eight sectors registered losses ranging from 0.1% (consumer staples) to 2.1% (utilities).

Intel (INTC 23.93, -0.12, -0.5%) was a story stock from the semiconductor space, initially trading up as much as 5.9% before closing lower following news that CEO Pat Gelsinger is out and the company will be led by interim co-CEOs until a new CEO is hired.

The market received news of further developments in the Middle East, but stocks, bonds, and commodities didn't react much. President-elect Trump warned in a Truth Social post of consequences if Middle East hostages are not released. Also, The New York Times reported that Israel and Hezbollah have traded fire with both sides accusing the other of violating the ceasefire deal.

Treasuries, which can benefit from safe-haven buying during geopolitical tension, settled with losses, leaving the 10-yr yield two basis points higher at 4.20%. Oil prices, which can increase when worries about supply chain disruptions are piqued, settled little changed from Friday ($68.07/bbl, +$0.18, +0.3%).

The S&P 500 and Nasdaq Composite remained near session highs following the headlines.

There was also some Fedspeak in the mix today, but the equity market didn't react much to that, either. Atlanta Fed President Bostic (FOMC voter) said in a speech that "conditions on both sides of the Fed's mandate appear to be broadly healthy" and Fed Governor Waller said he is leaning toward supporting a cut to the policy rate at the December FOMC meeting.

The fed funds futures market did react to this, pricing in a 79.0% probability of a 25 basis points rate cut at the December FOMC meeting, up from 66.0% one day ago and 52.3% a week ago, according to the CME FedWatch Tool.

Separately, the dollar built up strength today, leading the US Dollar Index to move 0.7% higher to 106.46. This move relates to President-elect Trump saying he would impose 100% tariffs on countries moving away from the dollar as the world's reserve currency.

Reviewing today's economic data:

• November S&P Global US Manufacturing PMI - Final 49.7; Prior 48.5
• November ISM Manufacturing Index 48.4% (Briefing.com consensus 47.6%); Prior 46.5%
  • The key takeaway from the report is that manufacturing sector activity overall continues to be weak, but showed a green shoot with the new orders index returning to expansion territory after seven straight months of contraction.
• October Construction Spending 0.4% (Briefing.com consensus 0.1%); Prior 0.1%
  • The key takeaway from the report is that residential construction activity rebounded nicely, led by single family construction.

Tuesday:

The S&P 500 (+0.1%) and Nasdaq Composite (+0.4%) moved further into record territory. There wasn't a lot of conviction behind the upside moves, which were driven largely by mega cap gains, and the overall vibe in the market was more negative. The Dow Jones Industrial Average (-0.2%) settled slightly lower than yesterday while the Russell 2000 underperformed, dropping 0.7%.

Apple (AAPL 242.65, +3.06, +1.3%) and Meta Platforms (META 613.65, +20.82, +3.5%), which hit fresh 52-week highs, were top performers from the mega cap space, along with Amazon.com (AMZN 213.44, +2.73, +1.3%), NVIDIA (NVDA 140.26, +1.63, +1.2%), and Eli Lilly (LLY 813.33, +13.53, +1.7%).

Tesla (TSLA 351.42, -5.67, -1.6%) lagged its mega cap peers, settling lower in response to CEO Elon Musk's pay package getting rejected by a Delaware judge, according to Bloomberg, and after China-produced electric vehicle sales fell 4.3% in November, according to Reuters.

Gains in some of the aforementioned names propelled their respective S&P 500 sectors to close higher. The communication services (+1.1%), information technology (+0.6%), and consumer discretionary (+0.1%) sectors were alone in the green at the close while the remaining eight sectors registered losses ranging from 0.1% to 0.9%.

Treasuries settled mixed, keeping buying in check in equities. The 10-yr yield, which hit 4.17% earlier, settled three basis points higher than yesterday at 4.22%. The increase in selling followed the JOLTS - Job openings report, which totaled 7.744 million in October, up from a revised count of 7.372 million in September (from 7.443 million). The 2-yr yield declined three basis points to 4.17%.

Wednesday:

The S&P 500 advanced 36 points to a fresh record high, the Nasdaq Composite jumped 1.3% to a new all-time high, and the Dow Jones Industrial Average closed above 45,000 for the first time. The solid showing followed strong earnings results from Dow component Salesforce (CRM 367.87, +36.44, +11.0%) and upbeat comments about its Agentforce AI system for enterprises, which reignited enthusiasm in the AI sector.

Mega-cap stocks and semiconductor-related shares led the charge today. These stocks benefitted from the renewed AI optimism, as well as the continuation of positive momentum after a strong week. The Vanguard Mega Cap Growth ETF (MGK) closed 1.6% higher today and has gained 3.1% this week. The PHLX Semiconductor Index (SOX) was up 1.7% for the session and has surged 4.0% since last Friday.

Earnings results and guidance from other companies like Marvell (MRVL 118.15, +22.24, +23.2%), Okta (OKTA 86.11, +4.40, +5.4%), Pure Storage (PSTG 65.35, +11.81, +22.1%), and Dollar Tree Stores (DLTR 73.83, +1.35, +1.9%) garnered positive responses from investors, providing added support to the broader equity market.

A drop in market rates also contributed to the upside bias in stocks. The 10-yr yield dropped four basis points to 4.18% and the 2-yr yield dropped five basis points to 4.12%. The move in Treasuries followed weaker-than-expected economic data, including the ADP Employment Change and the ISM Service PMI for November. These reinforced the market's expectation that the Federal Reserve will cut rates by 25 basis points at its December 17-18 meeting.

Strength in some of the aforementioned stocks propelled the S&P 500 information technology sector (+1.8%) to the top of the leaderboard among the 11 sectors. On the flip side, the energy sector registered the largest decline by a wide margin, dropping 2.5% amid falling oil prices ($68.60/bbl, -1.37, -2.0%).

Market participants received the Fed's November Beige Book and comments from Fed Chair Jerome Powell at the NYT DealBook Conference, but stocks didn't react much.

During his remarks, Chair Powell expressed confidence in the U.S. economy, pointing to its strong performance, low unemployment, and progress on inflation. He emphasized the Fed's cautious approach to monetary policy, seeking to balance inflation control with labor market stability. Powell also reiterated the Fed's independence and affirmed the continuity of its relationship with the Treasury under the new administration. Turning to the Beige Book, the report indicated a slight rise in economic activity across most Federal Reserve Districts.

Reviewing today's economic data:

• Weekly MBA Mortgage Applications Index +2.8% (prior +6.3%)
• November ADP Employment Change 146K (Briefing.com consensus 170K); Prior was revised to 184K from 233K
• November S&P Global US Services PMI - Final 56.1; Prior 55.0
• November ISM Non-Manufacturing Index 52.1% (Briefing.com consensus 55.5%); Prior 56.0%
  • The key takeaway from the report is that tariff concerns were mentioned often among respondents considering their outlooks.
• October Factory Orders 0.2%; Prior was revised to -0.2% from -0.5%
  • The key takeaway from the report is that factory orders picked up following declines in the previous two months.

Thursday:

Today's market activity was relatively subdued after yesterday's record highs for the major indices. The S&P 500 (-0.2%), Nasdaq Composite (-0.2%), and Dow Jones Industrial Average (-0.6%) fluctuated around their prior closing levels, with the Russell 2000 trailing behind, closing 1.3% lower.

There was little urgency among sellers, but equally, buyer enthusiasm was muted, resulting in lackluster price action at the index level. In contrast, the cryptocurrency market showed notable strength, with Bitcoin surging above $100,000.

The semiconductor space was also in focus as the PHLX Semiconductor Index (SOX) dropped 1.9% with no specific catalyst driving the selling. The price action here reflected normal profit-taking activity after a solid showing so far this week. The SOX is still 2.0% higher than last Friday. Nearly all the SOX components closed lower, including NVIDIA (NVDA 145.06, -0.07, -0.1%) and Broadcom (AVGO 170.47, -0.09, -0.1%).

In the mega-cap space, stocks traded in mixed fashion, contributing to the overall tepid market sentiment. Tesla (TSLA 369.49, +11.56, +3.2%) and Amazon.com (AMZN 220.55, +2.39, +1.1%) closed with gains, helping to drive the move higher in the S&P 500 consumer discretionary sector (+1.0%).

Retailer components showed relative weakness in the consumer discretionary sector as earnings reports from the space roll in this week. The SPDR S&P Retailer ETF (XRT) dropped 1.6%. Although they're not sector components, American Eagle Outfitters (AEO 17.61, -2.93, -14.3%), Dollar General (DG 79.60, +0.10, +0.1%), and Five Below (FIVE 115.97, +11.00, +10.5%) were among the standouts in the retail space after reporting earnings results.

Treasury yields retreated from earlier highs, settling slightly mixed. The 10-year yield, which briefly surpassed 4.22%, settled unchanged for the day at 4.18%. The 2-year yield has eased from 4.17% to 4.15%, three basis points higher than yesterday.

In other news, OPEC+ agreed to extend the additional voluntary adjustments of 2.2 million barrels per day announced in November 2023 until the end of March 2025. WTI crude oil futures settled 0.4% lower at $68.30/bbl.

Reviewing today's economic data:

• Weekly Initial Claims 224K (Briefing.com consensus 213K); Prior was revised to 215K from 213K; Weekly Continuing Claims 1.871 mln; Prior was revised to 1.896 mln from 1.907 mln
  • The key takeaway from the report is that the totality of the report isn't signaling any major changes with respect to labor market trends, which have connoted some softening but no real breakage on the employment front.
• October Trade Balance -$73.8 bln (Briefing.com consensus -$75.1 bln); Prior was revised to -$83.8 bln from -$84.4 bln
  • The key takeaway from the report is that it reflects overall weakness in global trade activity in October.

Friday:

Today's trading was a tough slog. The major indices held to tight trading ranges, unable to achieve escape velocity in either direction as both buyers and sellers lacked conviction following today's open. Still, there was enough interest in the mega-cap stocks and enough relief surrounding the November employment report to keep the stock market in relatively good form.

There was an initial burst of buying interest when the opening bell rang, aided by a drop in market rates that was a reaction to an employment report that was neither too strong nor too weak. In that regard, it engendered a belief that the economy will continue on a soft landing/no landing track and that the Fed will agree to another 25-basis points rate cut in the target range for the fed funds rate to 4.25-4.50% at the December FOMC meeting.

The fed funds futures market corroborated that belief. The probability of another 25-basis points rate cut went from 70.2% ahead of the employment report to north of 90.0% following its release. The probability stood at 85.1% as of this writing, according to the CME FedWatch Tool.

The 2-yr note yield settled the day down five basis points at 4.10% and the 10-yr note yield dropped three basis points to 4.15%.

Market participants took some solace in the rate-cut outlook, yet they didn't take full advantage of it, largely because so much good news has been priced into the market already that it is contending with valuation concerns and allegations that it is overbought on a short-term basis and due for a pullback.

Be that as it may, there hasn't been any rush to use options to hedge portfolios against downside risk. The CBOE Volatility Index, which closed at 20.49 on Election Day, fell below 13.00 today (12.72, -0.82, -6.1%) to its lowest level since mid-July or just before the S&P 500 suffered a near 10% pullback.

Leadership from the mega-cap stocks, a positive showing from the small-cap stocks, and growth stock enthusiasm following the earnings results and guidance from the likes of lululemon athletica (LULU 399.60, +54.79, +15.9%), DocuSign (DOCU 106.99, +23.31, +27.9%), and Ulta Beauty (ULTA 428.17, +35.30, +9.0%), made the difference for the broader market. The market cap-weighted S&P 500 and the Nasdaq Composite, which closed roughly at its high for the session, finished yet again with new record highs.

The consumer discretionary sector (+2.4%), taking its lead from LULU and ULTA, easily outpaced every other sector today. The next best performer was communication services (+1.4%) followed by information technology (+0.1%). All three of these sectors house mega-cap components. The Vanguard Mega-Cap Growth ETF (MGK) jumped 0.7%.

Market breadth figures and a 0.1% decline for the equal-weighted S&P 500 told the tale of an otherwise mixed market. Decliners led advancers by a 5-to-4 margin at the NYSE while advancers led decliners by a 13-to-8 margin at the Nasdaq.

Reviewing today's economic data:

• November nonfarm payrolls increased by 227,000 (Briefing.com consensus 200,000). November private sector payrolls increased by 194,000 (Briefing.com consensus 200,000). November unemployment rate was 4.2% (Briefing.com consensus 4.2%), versus 4.1% in October. November average hourly earnings were up 0.4% (Briefing.com consensus 0.3%) versus 0.4% in October.
  • The key takeaway from the report is that it has satisfied the market's December rate cut curiosity in the sense that it gives the Fed cover, absent what we may see in next week's CPI and PPI reports, to cut the target range for the fed funds rate by another 25 basis points at the December FOMC meeting.
• The preliminary University of Michigan Index of Consumer Sentiment for December increased to 74.0 (Briefing.com consensus 73.5) from the final reading of 71.8 for November. In the same period a year ago, the index stood at 69.7.
  • The key takeaway from the report is the understanding that consumers were targeting the purchase of durables now to avoid what they think will be higher prices in the future.
• Consumer credit increased by $19.2 billion in October (Briefing.com consensus $10.5 billion) after increasing a downwardly revised $3.2 billion (from $6.0 billion) in September.
  • The key takeaway from the report is that the expansion of consumer credit was driven by revolving credit, showing a propensity by consumers to use credit for their spending activity.