Market Recap – Week ended Nov. 15

Stocks Lower; Earnings Reports Positive

Overview: Stocks were lower across the globe last week, as elevated political uncertainty and concerns about rising interest rates weighed on markets. In the U.S., the S&P 500 index fell 2.1%, as Federal Reserve Chair Jerome Powell said on Thursday the Fed is not “in a hurry to lower rates” given strong economic growth and a strong labor market. Meanwhile, Treasury yields rose last week on the heels of inflation rising in October from the prior month, with the 2-year and 10-year Treasury notes finishing the week at yields of 4.30% and 4.43%, respectively. Yields have now risen about 65 basis points (0.65%) across the curve since the end of September as investors adjust to expectations of a slower rate-cutting cycle by the Fed. On the political front, the Republican party has officially secured a majority 218 seats in the House of Representatives, giving them complete control of Congress and allowing president-elect Trump to more easily implement policy. Looking ahead to this week, major news will come on Wednesday with mega-cap Nvidia reporting both earnings and forward outlook for chip demand. Markets also will see earnings from retailers such as Walmart and Target this week. According to Factset, with 93% of S&P 500 companies reporting third-quarter results as of last Friday, about 75% have reported a positive earnings surprise, and 61% have reported results above revenue expectations.

Update on Growth and Labor (from JP Morgan): In September, the Fed kicked off its cutting cycle because “the balance of risks” had shifted. But subsequent economic data and the election results could be shifting it back. As of now, both growth and the labor market are tracking stronger than the Fed expected, posing upside risk to inflation. Core PCE has come down since 2022, but progress has stalled over the past few months. Both CPI and PPI rose solidly this month, increasing estimates for October PCE. Moreover, the housing inflation driving CPI is unlikely to alleviate anytime soon. The ~75bp sell-off in the U.S. 10-year since the first cut has pushed mortgage rates from 6.1% to 6.8%, and housing purchase activity remains near its lowest level since 1995. While Powell stated at the November meeting “in the near term, the election will have no effects on our policy decisions,” investors are likely more concerned about the long term. Several of Trump’s top priorities are somewhat inflationary. Immigration restrictions could re-heat the labor market, stoking wage growth, and tariffs could increase prices. This, combined with a potential trade-war supply chain disruption, could reverse recent disinflation progress in goods. Altogether, risk seems more skewed toward inflation than in September. December revisions to the dot plot should reflect this, but the Fed will likely stay the cutting course. However, markets are currently only pricing ~70bps of easing by the end of 2025, compared to ~95bps before the election and ~160bps after the September meeting. Investors should be aware future easing could progress slower and end quicker than previously expected.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, Factset, CNBC.

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