Last week, U.S. stocks stabilized and rebounded as investors shifted their focus from technology to cyclical sectors after Nvidia's performance report. The small-cap Russell 2000 index performed well, with funds continuing to flow back into equity markets. A strong economic outlook overshadowed geopolitical concerns, uncertainty surrounding President-elect Trump's policies, and doubts about the Federal Reserve's December rate cut.
Despite concerns, the U.S. economy showed resilience with no signs of weakness. A survey indicated optimism about potential tax reductions and business-friendly policies under Trump's administration, boosting market confidence. The S&P Global U.S. Composite PMI rose to 55.3, the highest since April 2022.
The labor market remained stable, with initial jobless claims dropping to 213,000, the lowest since April. Despite a cooling trend in job demand, key labor indicators remained steady despite recent hurricanes. Richmond Fed President Barkin noted that businesses find it easier to pass costs to consumers, making inflationary pressures more impactful.
According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut in December remains around 60%. Nomura Securities was the first to predict the Fed would hold rates steady. Regional Financial's Chief Economist Richard Moody highlighted potential price pressures across various economic sectors, questioning if the Fed can achieve its 2% inflation target.
Investors continued to shift from technology to cyclical sectors, pushing the Dow Jones to new highs. The Russell 2000 index reached a yearly high of 2400 points. Consumer and materials sectors led gains, with Walmart (WMT, Financial) seeing strong quarterly results. Communication services lagged, with Alphabet facing antitrust risks.
Investors bought U.S. equity funds for the third consecutive week, with net purchases reaching $2.98 billion. However, inflow strength was moderated by cautious Fed rate outlooks and geopolitical tensions. Historically, election years see positive stock performance in the final months, with the S&P 500 averaging a 3.3% rise since 1952.
Despite Nvidia's (NVDA) limited impact, the market's ability to rise without significant tech sector support is a positive signal. As Thanksgiving approaches, market activity may slow, increasing volatility risks. The dollar index recently broke resistance at 107, its highest since mid-2022, and rising Treasury yields and consumer data could trigger short-term market fluctuations.
