Short On Time… Executive Summary
The markets inched up last week. Kind of a yawn. Make no mistake, all eyes are on the Fed this week and their Wednesday meeting and most important, the press conference afterward. I still say pay no attention to what they say in these conferences, only what they do and their official statement. The rest is noise and posturing. Kind of like when two people are having a conflict and they tell the other person all the things they are going to do. Generally, what I like to refer to as all show and no go. This is the Fed press conference. You may not have noticed, but even though they cut rates last time and will cut again Wednesday, they have succeeded in actually pushing rates up slightly based on the posturing of all these press conferences. Assuming they keep cutting, and they probably will, the rubber will meet the road, and real-world rates will start to come down as long as inflation is moderate, and for now it is.
I know this is supposed to be the short and succinct part of the newsletter, but this next part is important, so read on. JP Morgan has put out their forecast for next year. Below is a brief excerpt summarizing the highlights of the 70-page document.
“We are positive on global equities expecting double-digit gains across domestic markets (DM) and emerging markets (EM) supported by robust earnings growth, lower rates, and declining policy headwinds. The U.S. is set to remain the world’s growth engine, driven by a resilient economy and an AI-driven super cycle that is fueling record capex, rapid earnings expansion, and unprecedented market concentration in Quality Growth and AI beneficiaries. In 2026, we anticipate that style positioning will resemble 2025 with new extremes in crowding, record concentration, and a “winner-take-all” dynamic. We think AI will continue to be the key theme that drives sector performance next year and we continue to favor the Mag7. We are constructive on the S&P 500’s outlook in terms of price target, 7,500 by YE26, and above-trend earnings growth of 13-15% for at least the next two years. If the Fed further eases policy, we see greater upside with the S&P 500 surpassing 8,000 in 2026. Despite AI bubble and valuation concerns, we see current elevated multiples correctly anticipating above-trend earnings growth, an AI capex boom, rising shareholder payouts, and easier fiscal policy. While the earnings benefit tied to deregulation and broadening AI-related productivity gains remain underappreciated, in our view.”
I’d say that is positive. I’m sure there are gloom and doomers out there who will say head for the hills. Long term, that strategy never really works out.
The Week On Wall Street
Stock prices pushed higher last week, notching multiple records along the way as employment and inflation data took center stage in anticipation of the Fed’s upcoming meeting. The Standard & Poor’s 500 Index rose 0.31 percent, while the Nasdaq Composite Index picked up 0.91 percent. The Dow Jones Industrial Average gained 0.50 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, added 0.72 percent.
Fed in Spotlight
Stocks fell to start the week as all three averages snapped a five-day win streak. Megacap tech stocks then led a recovery rally, which continued its momentum midweek as ADP's November report showed a decline in private-sector payrolls. Investors welcomed the report, believing it might prompt an interest rate adjustment at the Fed’s upcoming meeting. All three major averages posted modest gains over both Tuesday and Wednesday.
Stocks then largely went sideways, with small gains for the S&P and Nasdaq while the Dow fell slightly. Meanwhile, the Russell 2000, which measures the performance of small-cap stocks, has cracked a fresh record high. Markets rallied on Friday after a delayed inflation report showed that prices rose at a slightly slower annualized rate in September. The S&P closed out a four-day winning streak.
Economy Watch
The Fed’s preferred measure of inflation stayed cool. The Personal Consumption Expenditures (PCE) Price Index rose 2.8 percent in September from a year prior, cooler than the 2.9 percent expected. The annualized core inflation rate of 2.8 percent also came in just under expectations. The ADP private-sector jobs showed employers cut 32,000 jobs in November. Two things to remember: (1) this report is only based on the first two weeks of November, and (2) small business payrolls declined by 120,000, while employers with 50 or more workers added 90,000 jobs. An optimistic inflation report but a sluggish jobs update added to growing speculation that the Fed will adjust rates at its next (and last) meeting of the year.
This Week: Key Economic Data
Tuesday: NFIB Small Business Optimism Index. Job Openings (Oct.)* Federal Open Market Committee meeting, Day 1.
Wednesday: Employment Cost Index (Q3).* Federal Budget. Federal Open Market Committee meeting, Day 2. Fed Interest Rate Decision. Fed Chair Press Conference.
Thursday: Weekly Jobless Claims.
This Week: Notable Companies Reporting Earnings
Tuesday: AutoZone, Inc. (AZO)
Wednesday: Oracle Corporation (ORCL), Adobe Inc. (ADBE), Synopsys, Inc. (SNPS)
Thursday: Broadcom Inc. (AVGO), Costco Wholesale Corporation (COST)
Stay tuned...
