Stocks bounced Friday after sliding Thursday despite upbeat earnings as well as the forward outlook from AI darling, Nvidia (NVDA). Year-End Seasonality makes the short-term direction of the market difficult, if not impossible to anticipate and this year is no different, which is why we focus on the intermediate and long-term. With this time frame in mind, we believe the correction has been warranted and healthy and, once complete, will extend the duration of the bull. We will stick with what we noted last week in that “our expectations are for the pullback will have run its course sometime soon. However, a broadening of the market leaders is probably in the cards and warranted as we enter the new year. A resolution to the government shutdown will be the catalyst to a year-end rally.”
· Certainly, ambiguity over the Fed’s next move following their regularly scheduled meeting December 9-10 has contributed to the recent volatility in the financial markets. You can add to this mix the lack of economic data because of the government shutdown and at least a temporary shift in sentiment toward large cap tech, not to mention what was outlined above.
· Despite the better than expected September Payroll Data noted below, it is disappointing that this is the last piece of broad payroll data that will be received prior to the Fed’s meeting as October and November are scheduled to be released simultaneously on December 16.
It’s The Economy…”
· The University of Michigan reported that its Final November October Reading of Consumer Sentiment rose to 51.0 (-4.9% y/y) from a preliminary November 50.3 but slid from a final October 53.6. The final November expectations component rose to 51.0 (1.4% y/y) from a preliminary November 49.0 and from a final October 50.3. Lastly, the final November current conditions component fell to 51.1 (-20.0% y/y) from a preliminary November 52.3 as well as from a final October 58.6. According to the Survey of Consumers Director, Joanne Hsu, “after the federal shutdown ended, sentiment lifted slightly from its mid-month reading. However, consumers remain frustrated about the persistence of high prices and weakening incomes.” (Source, Univ of Michigan)
· Non-Farm Payrolls (approximately 80% of the U.S. workforce) rose by 119,000 during September, above the consensus estimate of 45,000. Payroll numbers for the prior two months were revised to -4,000 and 72,000, from 22,000 and 79,000 for a net gain of 33,000. The rolling three-month average rose to 62,000 from 18,000 but fell from 231,700 in January. Private Sector companies added 97,000 jobs while the Public Sector fell by 52,000. This includes a 3,000 drop in federal government employment during September (-3.0% y/y) and 94,000 year-to-date. Payroll data was positively influenced by private education and health care (59,000) along with leisure and hospitality (47,000). On the flip side, professional and business services shed 20,000 jobs and temporary employment dropped 15,900. The Unemployment Rate ticked up to 4.4% during September from 4.3% in August. The Unemployment Rate had gotten as low as 3.4% in April 2023. (Source, U.S. Department of Labor)
· Sales of Existing Homes rose 1.2% to a Seasonally Adjusted Annualized Rate (SAAR) of 4.10 million units during October from 4.05 million during September (1.74% y/y). According to the National Association of Realtors (NAR) total housing inventory at the end of September was 1.52 million units, down 0.70% from September (1.7% y/y). Unsold inventory sits at a 4.4-month supply at the current sales pace, down from 4.5 months in September, but up from a low of 1.6 months in January 2022. The report also noted that the median price for all existing homes rose 0.7% to $415,200 in October (2.1% y/y) from $412,300. (Source, National Association of Realtors)
· Initial Claims for Unemployment Benefits for the week ended November 15th fell 8,000 to 220,000 from 228,000, which was as the four-week rolling average fell 3,000 to 224,250 from 227,250. Continuing claims for the week-ended November 8th rose 28,000 to 1,974,000 from 1,946,000 the prior week. The continuing claims four-week average rose 6,750 to 1,960,250 from 1,953,500. (Source, U.S. Department of Labor)
Economic Reports scheduled to be released this week, include the following – on Tuesday, September Wholesale Inflation as Measured by the Producer Price Index (PPI), August Business Inventories and November Consumer Confidence; on Wednesday, October Durable Goods, Q3 Gross Domestic Product (GDP), September Wholesale Inventories, October New Home Sales and October Income and Spending.
Several potentially market moving companies are scheduled to report earnings, to include Agilent Technologies (A), Zoom Communications (ZM), HP (HPQ), NetApp (NTAP), Burlington Stores (BURL), Dick’s Sporting Goods (DKS), Best Buy (BBY), Analog Devices (ADI), Dell Technologies (DELL), Autodesk (ADSK), Workday (WDAY), Deere (DE), Zscaler (ZS) and Kroger (KR).