Tech Stocks Rebound Sharply to Propel Markets; Bonds Also Gain
Good morning. I hope everyone had a nice Thanksgiving and holiday weekend. Welcome to December already!
The Dow (+3.2%), NASDAQ (+4.9%), and S&P 500 (+3.7%) exhibited strong gains for the week. Meanwhile taxable bonds gained 0.4% and tax-free municipal bonds gained 0.2%. The 10-year Treasury fell 0.05% to finish the week at 4.01%.
Another example of bad news is good news helped propel the markets for the holiday-shortened week. In the absence (now a delay) of labor market data due to the government shutdown, economists have focused greater attention on the ADP private payrolls report. That report showed weakness in the job market, and in conjunction with a Fed speaker comment, enthusiasm peaked among investors that the Fed may indeed cut interest rates at its next meeting in December. In fact, the probability of an interest rate cut rose from about 10% to 70% last week. See the chart below. Tech and AI-related stocks continue to remain volatile as investors question the validity of ever-increasing capital expenditures, but they also benefitted greatly from the potential cut in interest rates hopes. Further, the earnings of those companies continue to remain strong, so there are arguments on both sides for valuations of these companies.
Chart of the Week—Stocks have largely tracked Fed cut expectations
Source: CPR
In other economic news, the government is now reporting data from September, but the impact on the markets is muted, because the data is considered old news by many investors. The Producer Price Index (PPI) in September rose less than expected, indicating that tariffs are having less of an adverse impact than originally expected. Retails sales in September were mostly in line with expectations, suggesting that consumer spending remains resilient, but that was also before the government shutdown. While reported this morning (not last week), Black Friday sales showed an increase over last year, which is encouraging.
Have a great day and terrific week!
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The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
