Everything is relative. Wall Street breathed a huge sigh of relief at the beginning of a holiday-shortened week that, despite all the glaring shortcomings of Trump’s pick Scott Bessent, financial markets have at least not been saddled with a clownish Dr. Oz-type figure as Treasury Secretary. A degree of calm returned to bond markets on Monday as interest rates eased and stocks moved higher at the open and held on to most of their gains throughout the session. Yet again, Small Cap names were the star performers (indicative of the continuing healthy broadening of participation in the rally) but Tech/AI stocks remained on ice, only minimally participating.

An exception was Macy’s whose stock got trashed at the open just days before its traditional NYC parade after the company was forced to cancel its scheduled earnings report as a result of the disclosure of an accounting scandal affecting $150m of expenses not taken into consideration. They were hidden, it would appear, by an individual employee.

Trump’s tariff policy began to come into focus on Tuesday with an opening salvo of specific threats on social media and overseas markets reacted badly. By the time Wall Street opened, Asian and European stocks had already buckled but it couldn’t derail the upward momentum of U.S. stock indexes which continued higher, with the notable exceptions of the three big U.S. automakers, which all tumbled on the tariff proposals.

Both the S&P 500 and Dow Jones Industrial Average (DJIA) reached new all-time highs yet again, as traders seemed to price in that the president-elect’s approach on this issue may be just characteristic bluff and bluster. As one equity strategist put it, “This is just Trump’s negotiating style: step one, punch in the face, step two, let’s negotiate.”

A deluge of retail sector earnings reports proved mixed at best. Kohls was an absolute disaster (punished by a 23% dive in the stock price in the first 30 minutes of trading), Best Buy was far from great, Abercrombie and Fitch’s fairly decent results failed to reach a very high expectation bar although the news out of Dick’s Sporting Goods was positive. The minutes from the last Fed meeting didn’t really throw up any red flags about an interest rate cut at the next one in December, the probability of which is now moving steadily higher again (see FEDWATCH INTEREST RATE TOOL below).

There was a big pre-holiday economic data dump on Wednesday morning, most importantly the Personal Consumption Expenditures (PCE) price index inflation measure, upon which the Fed relies heavily to determine its interest rate policy, which came in a touch hotter than expected at +2.3% annualized. Initial Jobless Claims, Durable Goods and the latest Q3 Gross Domestic Product (GDP) estimate of a +2.8% annualized increase all came in looking perfectly fine.

Markets mostly yawned in response at the open on what was the last full trading day of the month but there were rather troubling earnings reports from Dell, Hewlett Packard and Crowdstrike. Stocks retreated from record territory and a six-day winning streak for the S&P 500 finally came to an end after prices drifted lower in a light volume session, for the most part driven by yet more weakness in Big Tech names.

Traders returned to their desks on Friday for a half-day session showing no signs of any hangover, pushing stock prices further north to more new record highs for the S&P 500 and the DJIA and November proved to be the strongest month of 2024 so far for both those indexes.

The path of least resistance into year-end remains solidly higher and a few somewhat more conventional cabinet choices has been a market positive. If that continues and growth stays Goldilocks, then the S&P 500 could well remain above 6,000 and advance between here and New Year’s Eve. Once the confetti in Times Square has all been swept up in a few weeks time, however, the outlook may possibly start to feel rather different.

OTHER NEWS ..

Silly Season Is Upon Us .. Wall Street research firms are beginning to issue 2025 forecasts for the equity market. These reports have so far been entirely bullish. Major research teams have projected the benchmark index will finish as low as 6,400 next year or as high as 7,000 (it closed on Friday at 6032).

‌But as per usual, many of the current targets simply fall in line with the comforting anchor of the traditional average annual return of the S&P 500 over the last century. And that roughly 11% annual return hardly ever actually occurs in a one-year period.

The only useful takeaway from these hot takes is that it's more about the direction of the market than where the actual projections fall. In other words, at best they act as a compass, certainly not as a GPS.

In fact, the track record of these dart throws is embarrassingly pathetic when looked back upon in retrospect and the numerical price targets themselves, which are demanded and then loudly publicized by click-hungry financial media, should be disregarded by investors.

Things Will Change - So Why Worry Now? .. There has been some discussion around the reasons that markets have tended to react only lightly to some of Trump’s wackier cabinet picks (except for the Kennedy Health selection which had a very tangible and damaging impact on the stock prices of a number of healthcare-related stocks). The fact is that during the president-elect's first term in office, nearly half of the 15 people he initially appointed to lead the executive departments were already gone and had been replaced by the halfway point of his presidency. And it’s even possible that some of his initial choices may not even make it through the confirmation process.

Wall Street seems to be taking the view that, in Trump’s completely unpredictable and highly transactional world, very little is going to be definite, fixed or permanent.

ARTICLE OF THE WEEK ..

“We should be celebrating the miracle of the U.S. stock market. It’s the greatest wealth-building machine on the planet.”

THIS WEEK’S UPCOMING CALENDAR ..

It’s jobs week again with the Jobs Openings and Labor Turnover Survey (JOLTS) for October out on Tuesday and a big Jobs Report on Friday, which will seek to begin to clean up the messiness of last month’s numbers which were impacted by hurricanes and labor disputes over the studied period. Estimates this time around are for a 190k increase in payrolls and a slightly higher 4.2% unemployment rate as well as very significant revisions to September’s data.

More Q3 earnings will keep trickling in, including from Salesforce, Hewlett Packard, Dollar Tree, Kroger, Lululemon, DocuSign and Ulta Beauty.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Consumer Cyclical (two biggest holdings: Amazon, Tesla) - up 3.5% for the week.

Last week’s worst performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) - down 1.5% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price rose 1.2% last week, is up 26.8% so far this year and ended the week at its all-time record closing high.

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price rose 1.2% last week, is up 20.5% so far this year and ended the week 0.2% below its all-time record closing high.(11/08/2021).

AVERAGE 30-YEAR FIXED MORTGAGE RATE:

* ⬇︎ 6.81%

One week ago: 6.84%, one month ago: 6.72%, one year ago: 7.22%

Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.

FEAR & GREED INDEX:

“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.

The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.

Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.

Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded ...

On Ice.

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