The shortened holiday week offers plenty of action, including an OPEC meeting, Nvidia earnings, and Treasury auctions. The dollar index is near three-month lows, which could provide support for equities. Microsoft shares rose in premarket trading on a key new hire.
Conference Board Leading Indicators ahead after 18 consecutive months of declines
Crude on upswing ahead of weekend OPEC meeting where further cuts seen likely
Treasury auctions on tap could help set direction of yields in coming days
(Monday market open) This week packs lots of news into a small package, but major indexes offer little in the way of a direction after a sluggish overnight session.
The S&P 500® Index (SPX) and Nasdaq Composite® (COMP) open Monday on three-week win streaks amid hopes that recent soft inflation data could herald the end of the Federal Reserve’s rate hikes. It’s the longest win streak since July for the major indexes.
Small caps outpaced their larger brethren last week after a drop to nearly two-month lows in the 10-year Treasury note (TNX) yield. Small caps, which have been severely outpaced by their larger brethren year-to-date, can be more sensitive to rising borrowing costs, so the yield decline appeared supportive.
Trading could slow as the week continues, with U.S. markets closed for Thursday’s Thanksgiving holiday followed by a short session Friday. But there’s plenty of action between now and then, including tomorrow’s earnings report from chip giant Nvidia (NVDA) and several Treasury auctions. The 10-year U.S. Treasury note yield gained ground early Monday but remains not far off recent two-month lows. Its path this week could help set Wall Street’s direction.
Direction might also be determined in part by the U.S. Dollar Index, which trades near three-month lows following signs of stronger economic data overseas. The index is at key technical support near its 200-day moving average of 103.6 this morning. Weakness in the dollar could conceivably inject some strength into equities.
Week ahead: The Conference Board’s Leading Indicators for October bows soon after the open today. It’s worth checking for possible signs of slowing growth following a light October jobs report. Consensus on Wall Street is for a 0.7% monthly drop in the headline figure, the same as in September, according to Trading Economics. The Leading Economic Index (LEI) has fallen 18 consecutive months beginning in April 2022. Historically, it’s unusual to see that long a stretch without a recession.
Tuesday morning puts housing front and center with October Existing Home Sales. Analysts don’t expect much change from September. On Wednesday there’s an update on Initial Jobless Claims. These normally run on Thursday but moved up a day due to the holiday.
Minutes on tap: Tomorrow afternoon brings minutes from the recent Federal Open Market Committee (FOMC) meeting, which could help shed light on the vote to keep rates unchanged. While there’s been a lot of data under the bridge since then, the minutes could reveal any specific concerns policymakers brought up.
“The Fed is in pause mode,” says Cooper Howard, a fixed income strategist at the Schwab Center for Financial Research. “Last week’s CPI and PPI reports showed signs that inflation is cooling more than expected even though it’s still elevated. The jobs market is also showing signs that it’s loosening, which likely confirms that the Fed doesn’t need to hike rates again this cycle.”
Sold! Speaking of rates, a handful of Treasury auctions take place in the coming days, including several later this morning. These have taken on more significance than usual lately due to worries about hefty supplies overwhelming demand and forcing yields higher.
Crude takes a swing: Baseball great Yogi Berra said, “It ain’t over till it’s over,” and that applies to this week because it doesn’t really end Friday for investors. The coming weekend features OPEC’s next meeting where many analysts expect the cartel to deepen output cuts after crude prices fell 20% from their September highs. Crude has been on an upswing the last few days after touching four-month lows early last week
Nvidia (NVDA) becomes the final mega-cap firm to report when it opens its books Tuesday afternoon. The chip firm, a leader in artificial intelligence (AI), recently saw shares approach record highs and has consistently impressed with results and guidance. However, its last two quarters are a hard act to follow.
Data center is key for Nvidia after a 171% year-over-year jump in revenue for that business in fiscal Q2. The data center business includes artificial intelligence (AI) chips that sparked enthusiasm this year due to their use in applications like ChatGPT.
Nvidia delivered massive earnings and revenue beats the last two quarters, possibly raising pressure for an encore. The company forecast fiscal Q3 revenue of $16 billion, plus or minus 2%, up 170% annually. But considering how results outpaced expectations earlier this year, it’s likely there are “whisper numbers” on Wall Street above that guidance, and shares could possibly get dinged if there’s no major upside surprise.
Tuesday features earnings from Lowe’s (LOW), Kohl’s (KSS), Dick’s Sporting Goods (DKS), Best Buy (BBY), and Nordstrom (JWN).
Microsoft (MSFT) shares popped 1% in premarket trading after CEO Satya Nadella said former OpenAI chief Sam Altman will be joining the tech giant to lead a new artificial intelligence (AI) research team.
Early today, futures trading pegged chances at almost 100% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following the December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC’s January 30–31 meeting are 98%. The market prices in chances of the Fed cutting rates 25 basis points by its March meeting at 28%.
Ask the economist: Our content typically features insight from Schwab’s team of investment strategists. This time, we’ve brought in an outside expert for a deeper dive into last week’s Consumer Price Index (CPI) and what it says about the state of the economy. Listen to the latest On Investing podcast as Schwab’s Chief Investment Strategist Liz Ann Sonders asks Nancy Lazar, chief global economist at Piper Sandler, for her thoughts on the debate over “recession versus soft landing” and other key questions. That’s followed by a discussion about investment grade bonds featuring Schwab’s Chief Fixed Income Strategist Kathy Jones.
Ideas to mull as you trade or invest
Rate debate: There’s typically a long lag between rate hikes and their economic impact, but that wait might be ending. Recent data ranging from inflation to jobs growth to homebuilder sentiment all were light, and retailers said consumers are cautious about big-ticket spending. The same might be true for businesses, judging from Cisco’s (CSCO) soft guidance. All this raises questions about whether the Fed might be “behind the curve,” so to speak, in matching rates to what’s happening on the ground. The futures market expects the Fed to pivot and cut rates by mid-2024, but trading also builds in growing chances of a rate cut in Q1. Stocks and Treasury yields—forward-looking by nature—appear to have spent the last few weeks building in those cuts, with the market now projecting the fed funds rate to finish 2024 at 4.38%, compared with the current target range of 5.25% to 5.5% and the Fed’s projection of 5.1% for the end of next year. Fed speakers last week advised patience, and even suggested another rate increase isn’t off the table. “It’s too soon to declare victory over inflation,” Boston Fed President Susan Collins told CNBC in an interview Friday. The tug-of-war continues.
Quarterly scorecard: Earnings season is 94% complete and 82% of S&P 500 companies have beaten analysts’ consensus earnings per share (EPS) estimates, according to research firm FactSet. Q3 earnings growth is forecast at 4.3% overall, the first annual gain in a year. While all that sounds positive, the current quarter looms larger and is a question mark. Negative Q4 guidance from S&P 500 firms is above the five-and-10-year averages, FactSet notes, and analysts project Q4 EPS growth of just 2.9%. That’s followed by expectations for much stronger EPS growth of 11% in 2024, but off of relatively easy comparisons. The current forward price-to-earnings (P/E) of 18.6 for the S&P 500® Index (SPX) is up from lows near 17 last month and on the high side historically, meaning some of the forecast double-digit 2024 earnings growth may already be priced into the market. This could suggest that investors need to do their homework to find companies with stock prices that may not reflect their possible value. A stock picker’s market, as it’s sometimes called.
Volatility check: Don’t get used to current low volatility on Wall Street, because it might not stick around. At least that’s the way the Cboe futures market sees it, judging from current contango in the forward curve. While the Cboe Volatility Index (VIX) fell to seven-week lows below 14 at times last week, back months in the futures complex trade higher than the current contract, a condition called contango. January VIX futures trade above 16, with February above 17 and April above 18. Those aren’t historically high levels (the long-term average is around 20) but imply chances for wider daily moves in the SPX as the new year advances. Interestingly, there’s been near-term volatility the last few sessions, just not in stocks. Instead, fixed income markets have been volatile due to “heightened focus on data reports and what it means for Fed policy,” says Schwab’s Cooper Howard. “Going forward, we would not be surprised if yields move lower albeit with bouts of volatility.”
Nov. 21: Expected earnings from Nvidia (NVDA), Dick’s Sporting Goods (DKS), Lowe’s (LOW), Autodesk (ADSK), HP Inc. (HPQ), Medtronic (MDT), Kohl’s (KSS), and October Existing Home Sales.
Nov. 22: October Durable Goods, October Durable Orders, Final November Consumer Sentiment from the University of Michigan, and expected earnings from Deere (DE).
Nov. 23: U.S. markets closed for Thanksgiving holiday.
Nov. 24: No major data or earnings expected. Markets close at 1 p.m. ET.
Nov. 27: October New Home Sales
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