Global Highlights for This Week: Fed Easing Expectations Spread – Tech and Retail Face Tests
Last week, bolstered by growing market expectations for a Fed rate cut, U.S. stocks staged a clear rebound.
In just three-and-a-half trading days (markets closed Thursday and closed early Friday), the Dow Jones Industrial Average rose a cumulative 3.18%, while the S&P 500 and Nasdaq Composite gained 3.73% and 4.91%, respectively.
Despite the bounce, poor performance in prior weeks left the Nasdaq down 1.51% month-to-date, with the Dow and S&P up only 0.32% and 0.13%. Several heavyweight names saw sharp swings this month, especially Nvidia and Google, with traders closely watching how much GPU market share Google’s TPUs can capture.
Miller Tabak chief market strategist Matthew Maley said, “The profitability of artificial intelligence is coming under question. If this issue becomes more serious in December, it could have a big impact on the market.”
The good news: after several Fed officials signaled willingness to ease monetary policy, traders have sharply increased bets on a December cut. According to the CME FedWatch Tool, the probability of a 25 bps cut now stands at 86.4%.
Zacks Investment Management client portfolio manager Brian Mulberry commented, “Sentiment has swung back toward risk-on because the market is now 80-85% confident the Fed will cut in a few weeks.”
Analysts believe expectations for monetary easing could benefit a broader range of sectors, not just this year’s standout tech and AI stocks. For example, rate-sensitive small-cap stocks have performed strongly in recent days.
Next Tuesday, Fed Chair Jerome Powell will speak at a commemorative event. Since the event falls within the pre-meeting “blackout period” (10 days before an FOMC meeting), Powell is not expected to make any significant policy-related remarks.
The day before (next Monday), Bank of Japan Governor Kazuo Ueda will deliver a speech. Any unexpectedly hawkish tone could trigger massive unwinding of yen carry trades and potentially shock global financial markets.
Next week’s economic data will cover manufacturing and services activity as well as consumer confidence, with investors eager for clues on the economic backdrop and early signals on consumer spending following Black Friday.
Due to the earlier 43-day U.S. government shutdown, several reports used to gauge economic health have been delayed or canceled.
Ameriprise Financial chief market strategist Anthony Saglimbene said investors may have to wait until January data releases for a fuller picture of the economy.
On the earnings front, cloud software provider Salesforce will report, while results from Kroger, Dollar Tree, and Macy’s will also draw attention.
Key Overseas Economic Events Next Week
Monday (Dec 1): BOJ Governor Kazuo Ueda speaks in Nagoya, Japan; Eurozone November Manufacturing PMI (final); U.S. November S&P Global Manufacturing PMI (final); U.S. November ISM Manufacturing PMI
Tuesday (Dec 2): Fed Chair Powell speaks at a commemorative event; Eurozone November CPI (preliminary); Fed Governor Bowman testifies before House committee
Wednesday (Dec 3): Eurozone November Services PMI (final); U.S. November ADP employment change; U.S. September import price index MoM; U.S. September industrial production MoM; U.S. November S&P Global Services PMI (final); U.S. November ISM Non-Manufacturing PMI; EIA crude oil inventories (week ending Nov 28)
Thursday (Dec 4): U.S. November Challenger layoffs; U.S. initial jobless claims (week ending Nov 29); U.S. November Global Supply Chain Pressure Index
Friday (Dec 5): Eurozone Q3 GDP (final); Saudi Aramco announces official selling prices (around the 5th); U.S. December University of Michigan Consumer Sentiment (preliminary) / 1-year inflation expectations (preliminary); U.S. September Core PCE Price Index YoY