Short On Time… Executive Summary
We have seen some short term volatility for several reasons. First, the market is worried whether or not we will get a rate cut in December. I tend to think we will, but the probabilities currently have it at a coin toss. Unemployment is creeping higher. The Fed is mandated to worry about inflation and unemployment. Inflation is still grinding lower while unemployment is grinding higher. Second, some are pointing to price earnings (P/E) ratios of the big tech companies and saying they are too high. Yes, they are higher than average in some cases, but that alone is not a reason to sell stocks. In fact, Nvidia has a forward P/E of 23, while Walmart has a forward P/E of 34 and Costco has a forward P/E of 44. So, you tell me, who is expensive? It is a holiday shortened week, so trading may be muted. Will Santa bring investors gifts this year, or a lump of coal? He tends to bring them gifts if you look at the seasonality of the market. We’ve been good, so the big guy should know what list to put us on. But, we’re getting ahead of ourselves. I hope you spend Thanksgiving with those you love eating too much and reflecting on how truly blessed you are. I know I am.
The Week On Wall Street
Heightened volatility was on Wall Street’s mind last week, as investors continued to focus on valuations of artificial intelligence (AI) stocks. The Standard & Poor’s 500 Index fell 1.95 percent, while the Nasdaq Composite Index declined 2.74 percent. The Dow Jones Industrial Average slid 1.91 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, slumped 3.25 percent.
AI Valuation Worries
Stocks slid over the first half of the week as anticipation continued to build for Q3 results from one of the largest AI megacap tech stocks, due out midweek. While the decline was led by megacap tech stocks, which typically drag down both the Nasdaq and S&P 500, the Dow Industrials also fell. With the government still playing catch-up on a backlog of economic reports following the shutdown, investors kept a close eye on big consumer-related stocks for insights into the economy. Then midweek, all three major averages rebounded, with the S&P snapping a four-day losing streak. Sentiment improved as investors turned more positive about another AI firm’s quarterly report due out after Wednesday’s closing bell. That firm’s results helped boost stocks after the opening bell on Thursday, but prices retreated quickly as investor anxiety built over whether the Fed would adjust rates next month. The Fed’s October meeting minutes revealed divisions among the Committee's voting members. Additionally, the Labor Department's September jobs report painted a mixed employment picture, which might complicate the Fed's decision. Stocks rebounded on Friday after New York Fed President John Williams seemed to reassure investors that a rate adjustment at the Fed's December meeting was still a possibility. The bounce was jagged, as the rebound had to battle through disappointing economic data on consumer sentiment and manufacturing activity.
More Jobs, but Higher Jobless Rate
The delayed September jobs report came out last week, and showed employers added 119,000 jobs—the strongest monthly gain since April and a rebound from August’s loss of 4,000 jobs (which was later revised to a 22,000 gain). The jobs report was among the first post-shutdown reports to be published by the Labor Department. The unemployment rate in September rose to 4.4 percent, higher than the 4.3 percent economists expected. It was the highest number in four years. This was the Labor Department’s last monthly employment report before the Federal Reserve’s next meeting on December 9-10.
This Week: Key Economic Data
Tuesday: Retail Sales (Sept). Case-Shiller Home Price Index (Sept). Business Inventories (Sept). Consumer Confidence. Pending Home Sales.
Wednesday: Weekly Jobless Claims. Durable Goods Orders (Sept).
Thursday: THANKSGIVING HOLIDAY—MARKETS CLOSED
Friday: Chicago Business Barometer.
This Week: Notable Companies Reporting Earnings
Monday: Agilent Technologies (A)
Tuesday: Analog Devices, Inc. (ADI), Dell Technologies Inc. (DELL), Autodesk, Inc. (ADSK), Workday, Inc. (WDAY)
Wednesday: Deere & Company (DE)
Stay tuned...
