Wall Street’s eyes last week were firmly on important labor market data coming out on Tuesday and especially on Friday, with the release of the latest Jobs Report which would start to clean up the mess of last month’s data which was severely disrupted by hurricanes and labor disputes, effectively giving us two months worth of data at one time.

More tariff rumblings from Trump over the weekend with social media threats to countries deemed to be thinking about abandoning the US Dollar as a reserve currency (slightly ironic given his new-found rabid support for anything crypto) and a return to troublingly unorthodox cabinet and diplomatic picks gave the markets something of reminder that they need to expect the unexpected under the new administration and that the ride is going to be anything but smooth.

Nevertheless, trading was still cautiously optimistic on Monday with the S&P 500 tiptoeing quietly higher and deeper into record territory and tech stocks finally rebounded hard after their recent underperformance relative to the rest of the market and helped push the NASDAQ to its own all-time record closing high.

More of the same on Tuesday. Despite the bizarre events in South Korea (which briefly caused a dive in stock prices) and the Jobs Openings and Labor Turnover Survey (JOLTS) for October showing that job openings picked up while layoffs eased, the indexes were barely changed by the close, finishing slightly higher (thereby setting new record highs again) with tech names leading the way for the second day in a row.

Fed chairman Jerome Powell was scheduled to speak at the New York Times DealBook Summit on Wednesday and the stock market expressed its hopefulness about his interest rate-related comments by jumping nicely higher at the open and building on those gains throughout the day (more all-time highs of course, #56 of the year for the S&P 500 and #35 for the NASDAQ). This was despite the fact that Powell ended up saying that the economy looks better now than it did when the central bank began cutting interest rates in September, which could possibly be interpreted as meaning that the Fed can move more slowly in cutting interest rates.

It was a volatile day on the newswires with Trump’s choice of financial regulation-hater and crypto fanboy Paul Atkins to be Wall Street’s chief cop as head of the Securities and Exchange Commission (SEC), the collapse of the French government, the fallout in South Korea and the brazen murder of Brian Thompson, the chief executive of the insurance arm of UnitedHealth (UNH) in midtown Manhattan. The fact that the indexes are continuing to climb a wall of worry is a testament to the ongoing power of this rally.

It was party time in parents’ basements all over the world as the Atkins pick bolstered the price of Bitcoin which blew through $100k for the first time on Thursday but then substantially backtracked. Stocks took a breather ahead of the important Jobs Report the following day. Weekly New Jobless Claims, often a teaser to the big report, surprised a bit to the upside and helped keep something of a lid on interest rate cut expectations. The indexes all ended the session somewhat lower, although the dive in Small Caps was pretty significant.

The Jobs Report dropped before the open on Friday and came in mostly as expected with a +227k increase in payrolls, giving a three-month average of +173k when prior-month revisions were taken into account. The unemployment rate crept higher to 4.2%, which was a bit hotter than expected. The numbers did not really complicate things too much for the Fed with now just this week’s inflation data left to negotiate before December 18th’s interest rate decision and announcement.

Wall Street interpreted the report as pleasantly ambiguous, good enough for economic growth, but not so good that it could force the Federal Reserve to pause its rate-cutting plans and triggered a green light for a cut next week, the implied probability of which quickly jumped (see FEDWATCH INTEREST RATE TOOL below).

Stock and bond prices initially spiked higher in response but then spent the rest of session meandering gently back down towards the unchanged line ending up with small gains (but still enough for, you guessed it, more all-time record highs for the S&P 500 and the NASDAQ) and tech stocks once again outshining the overall market.

There’s a growing disconnect that is concerning some stock market observers. One of the biggest pillars of 2024’s remarkable rally has been the expectation of a future steady cycle of interest rate cuts from the Fed. Yet, when the market votes with its dollars in the futures market, the highest probability is assigned to between two and three cuts in 2025 following a December reduction (see FEDWATCH INTEREST RATE TOOL below).

This does not really compute since two or three cuts in a year cannot be described as a “steady cycle” and would imply about a 3.75% Fed Funds rate going into 2026, which could well fail to justify a rally built largely on the fact that lower interest rates than that have been anticipated.

Another possible threat to the steady cycle in 2025 is provided by so-called bond vigilantes, who are sharpening their knives and on the lookout for a resumption of inflation caused by tariffs, a fall-off in the labor market’s Goldilocks scenario, any signs of a government spending explosion under a Trump presidency and a downturn in economic projections.

We need to keep a really close eye on the data going forward since there is definitely potential for a trapdoor of a 10%+ correction in stock prices that have been pushed higher for over a year now by very optimistic interest rate expectations. Not a prediction but something to be aware of.

OTHER NEWS ..

Anger exposed .. The coverage of the shooting of United Healthcare’s Brian Thompson put the spotlight on a boiling level of deep public rage revealed on social media towards health insurance companies’ rapidly growing rate of denials of medical coverage and massive annual premium hikes under pressure from shareholders to preserve extremely high levels of earnings. The stocks of all the insurers fell hard over the week with UNH alone down 10% since the murder on the back of fears of intensified regulation from the upcoming populist administration.

No direct evidence has emerged to connect the shooting with a dispute over UnitedHealth’s business, though a shell casing and live ammunition round inscribed with “delay” and “depose” were recovered from the sidewalk at the midtown hotel where the attack took place. The words echo complaints many American consumers have about long waits for insurers to pay medical bills and often outright denial of claims, while at the same time raising their prices every year by a large multiple of the inflation rate.

These companies are among the most detested in the country. A Gallup survey last fall asked respondents what they thought of the service provided by their health insurers. Only 5% rated it as “excellent” with the vast majority calling it “poor” or only “fair”.

$$ On The Move .. The largest intergenerational wealth transfer in U.S. history is about to take place, moving about 80% of the wealth held today, though the vast majority of Americans are unlikely to inherit any money at all. About $105 trillion is projected to be passed down from older generations over the next quarter of a century, an amount roughly equal to the 2023 gross domestic product of the entire planet with $2.5 trillion passing next year alone.

Yet while the assets of millions of aging Americans are passed on, the percentage of the U.S. population that will benefit from inherited money has actually fallen, a sign of how accumulating family wealth has become more concentrated among the most affluent households. Almost 80% of American households will not ever inherit a penny, a slightly higher proportion than in the 1980s.

ARTICLE OF THE WEEK ..

Some real gems in here, including:

* “There are now more $100 bills than $1 bills in circulation.” ,

* “79 of the 100 most expensive U.S. ZIP codes are in California.”

* “Americans spent $186 billion on their pets last year, more than was spent on childcare.”

90 facts about 2024.

THIS WEEK’S UPCOMING CALENDAR ..

November U.S. inflation data, a European interest rate decision and a handful of earnings reports will be next week's highlights.

The Consumer Price Index (CPI) measure of retail inflation for November comes out on Wednesday. Estimates are for a +2.7% year-over-year increase The next day we get to see the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers.

The European Central Bank is widely expected to cut its target interest rate by a quarter of a percentage point to 3.00% on Thursday.

Earnings reports to watch next week will include Adobe, Costco, Oracle, AutoZone, Broadcom and GameStop.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

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