For the week, the S&P 500 (^GSPC) fell greater than 2%, while the Dow Jones Industrial Average (^DJI) shed greater than 500 points or nearly 1.3%. The tech-heavy Nasdaq Composite (^IXIC) sank over 3%.
Within the week ahead, a couple of economic data releases are expected so as to add to that narrative, with activity within the services and manufacturing sector and a consumer sentiment reading headlining the schedule.
Earnings, nevertheless, will bring attention back to among the biggest names in the company world after a couple of weeks of macro and political events dominating investor mindshare.
Key amongst these reports shall be earnings from AI leader Nvidia (NVDA), which is about to report results after the bell on Wednesday. Quarterly results from Walmart (WMT), Goal (TGT), BJ’s (BJ), and Deere & Company (DE) can even be in focus.
Because the Federal Reserve slashed its benchmark rate of interest by half a percentage point on Sept. 18, bond yields have ripped higher. The ten-year Treasury (^TNX) yield rose by 80 basis points between that date and the times following the election to trade near 4.5%.
That move in rates hadn’t been a problem for the stock market rally until last week.
While strategists have identified that a move higher in rates supported by stronger-than-expected economic growth might be welcome news for stocks, recent inflation data has thrown a wrench in that thesis.
On Wednesday, the “core” Consumer Price Index (CPI), which strips out the more volatile costs of food and gas, showed prices increased 3.3% annually for the third consecutive month during October. On Thursday, the “core” Producer Price Index (PPI) revealed prices increased by 3.1% over last 12 months in October, up from 2.8% the month prior and above economist expectations for a 3% increase.
Afterward Thursday, Powell said in a speech the Fed doesn’t have to be “in a rush” to lower rates of interest given the strength of the US economy. Markets moved lower on the comments, and the selling continued on Friday, with the Nasdaq Composite sliding greater than 2.2% for the session.
“Slower progress on inflation in recent months may prompt the Fed to reevaluate its pace of easing moving forward,” Wells Fargo’s economics team led by Jay Bryson wrote in a weekly note to clients on Friday.
As of Friday afternoon, investors were pricing in a 58% likelihood the Fed cuts rates of interest by 25 basis points at its December meeting, down from the nearly 86% likelihood seen a month ago, per the CME FedWatch Tool.
Schwab Asset Management CEO and chief investment officer Omar Aguilar told Yahoo Finance Powell’s comments and the Fed debate add uncertainty and “additional volatility and, due to this fact, the chance for investors to take something off the table and take some profits.”
Amid all of the macro headlines influencing the stock market in November, S&P 500 corporations have posted solid third quarter earnings.
The S&P 500 has grown earnings by 5.4% in comparison with the identical quarter a 12 months prior, marking the fifth straight quarter of earnings growth, per FactSet data. And one in all the index’s largest contributors to that expected growth is slated to report earnings this week.
Nvidia is expected to report earnings per share of $0.74 on revenue of $33.21 billion, in keeping with Bloomberg consensus data. Each metrics would represent greater than 80% growth in comparison with the identical period a 12 months prior.
“We expect an analogous story to the last several quarters with a beat and lift within the $2B range [for current quarter revenue guidance],” Jefferies analyst Blayne Curtis wrote in a research note previewing the discharge.
CEO Jensen Huang speaks through the keynote address of Nvidia GTC in San Jose, Calif., Monday, March 18, 2024. (AP Photo/Eric Risberg) ·ASSOCIATED PRESS
Curtis noted that expectations have continued to “creep higher” as Nvidia shares have rallied greater than 7% prior to now month and are up greater than 180% this 12 months. But Curtis believes the stock “continues to work” as Nvidia continues with the discharge of its latest AI chip, Blackwell.
And while investors shall be listening for any clues about which Big Tech corporations proceed to spend with the AI chip leader, the actual price motion of Nvidia’s stock after earnings hasn’t been a barometer for broader market performance within the near term.
For instance, Nvidia’s (NVDA) August earnings release did little to impress investors and the stock fell about 6% the day after its earnings release.
But that sour sentiment didn’t permeate through the market because the S&P 500 closed flat on that very same day. This marked the second straight quarter that the broader S&P 500 didn’t move with Nvidia following its earnings release.
Among the biggest winners in the market since Donald Trump won the presidential election on Nov. 5 have reversed course.
The Nasdaq 100 (^NDX) has given back nearly all of its gains. The S&P 500 closed Friday below where it opened the day after the election. And the small-cap Russell 2000 (^RUT) index, which soared greater than 9% following Trump’s victory, has now given back about half of those gains.
For small caps, the story is not much different than every week ago, after we noted Piper Sandler chief investment strategist Michael Kantrowitz’s concern about earnings momentum for corporations within the index.
“Within the last 20 days … we have definitely seen small cap estimates on the margin move pretty sharply lower,” Kantrowitz said. He added that investors would wish to see earnings accelerating to signal the beginning of a recovery.
“[It’s] not something we’re seeing quite yet,” Kantrowitz said. “So something we’ll be monitoring.”
The move in small caps is emblematic of the uneven trading motion within the two weeks following the election, as any impact from the Trump administration’s policies largely stays to be seen.
“Key economic positions haven’t been announced, and we remain in a policy uncertainty backdrop,” Citi US equity strategist Scott Chronert wrote in a note to clients when explaining the recent drawdown available in the market rally.
“We’re working from euphoric sentiment levels and implicit growth expectations at post-2008 highs,” he added. “Overall, there may be a variety of pressure on macros and fundamentals to deliver, which can explain some recent profit taking after a rapid post-election run.”
Economic data: MBA mortgage applications, Nov. 15 (0.5% prior)
Earnings: Nvidia (NVDA), Jack In The Box (JACK), NIO (NIO), Palo Alto Network (PANW), Snowflake (SNOW), Goal (TGT), TJX (TJX), Williams-Sonoma (WSM)
Economic data: Initial jobless claims, week ending Nov. 16 (217,000 previously); Leading index, October (-0.3% expected, -0.5% previously); Existing home sales month-over-month, October (+2.3% expected, -1% previously); Kansas City Fed manufacturing activity, November (-4 previously)
Earnings: Baidu (BIDU), BJ’s (BJ), Deere & Company (DE), Gap (GAP), Intuit (INTU), Ross Stores (ROST), Warner Music Group (WMG)
Economic data: S&P Global US manufacturing PMI, November preliminary (48 expected, 48.5 previously); S&P Global US services PMI, November preliminary (55 expected, 55 previously); S&P Global US Composite PMI, November preliminary (54.1 previously); University of Michigan consumer sentiment, November final (73 expected, 73 previously)
Earnings: No notable earnings releases.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.