The stock market’s frenetic post-election rally came to a screeching halt last week.
For the week, the S&P 500 (^GSPC) fell more than 2% and the Dow Jones Industrial Average (^DJI) fell more than 500 points, or nearly 1.3%. The tech-heavy Nasdaq Composite Index (^IXIC) fell more than 3%.
Two solid inflation indicators and commentary from Federal Reserve Chairman Jerome Powell weighed on markets last week, outweighing earlier investor excitement over Mr. Trump’s potential policy agenda. There was a significant increase in uncertainty regarding the path of interest rates.
The release of several economic indicators over the coming week is expected to add fuel to this narrative, with service and manufacturing sector activity and consumer sentiment leading the schedule.
But after weeks of macro and political events that dominated investor mindshare, the results will put some of the biggest names in the corporate world back in the spotlight.
Key among these reports will be the earnings of AI leader Nvidia (NVDA), which is scheduled to report results after the bell on Wednesday. The quarterly results of Walmart (WMT), Target (TGT), BJ’s (BJ), and Deere & Company (DE) will also be in focus.
Bond yields have soared since the Fed cut its benchmark interest rate by 0.5% on September 18th. The 10-year Treasury (^TNX) yield rose 80 basis points from that day to the days following the election, hovering around 4.5%.
This interest rate movement was not a problem for stock market gains until last week.
Strategists say rising interest rates, supported by stronger-than-expected economic growth, could be welcome news for stocks, but recent inflation data cast a crack in that theory. There is.
The “core” consumer price index (CPI) released on Wednesday, which excludes volatile food and gas prices, showed prices in October rose at an annual rate of 3.3% for the third consecutive month. The “core” producer price index (PPI) released on Thursday showed prices rose 3.1% year-on-year in October, up from 2.8% the previous month and above economists’ expectations for a 3% rise.
In a speech late Thursday, Powell said the Fed was in no “rush” to cut interest rates given the strength of the U.S. economy. The market fell on the comments, and the sell-off continued on Friday, with the Nasdaq Composite Index down more than 2.2% during the session.
“The slowing development of inflation in recent months may require the Fed to reassess the pace of future easing,” Wells Fargo’s Jay Bryson’s economics team said in a weekly note to clients on Friday. said.
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As of Friday afternoon, investors were pricing in a 58% chance that the Fed would cut interest rates by 25 basis points at its December meeting, down from an almost 86% chance a month ago, according to the CME FedWatch tool.
Omar Aguilar, CEO and Chief Investment Officer of Schwab Asset Management, said in a statement to Yahoo Finance that Powell’s comments and the Fed discussions have added to uncertainty and “further increased volatility. So there’s an opportunity for investors to take something off the table and make a profit.”
Amid macro headlines impacting the stock market in November, S&P 500 companies reported strong third-quarter profits.
According to FactSet data, the S&P 500 index’s earnings rose 5.4% compared to the same period last year, marking the fifth consecutive quarter of profit growth. And one of the index’s biggest contributors to that expected growth is scheduled to report earnings this week.
NVIDIA is expected to report earnings of $0.74 per share and revenue of $33.21 billion, according to Bloomberg consensus data. Both metrics represent more than 80% growth compared to the same period last year.
In a research note previewing the release, Jefferies analyst Blaine Curtis said, “We expect a similar development to the past several quarters, with revenue guidance for this quarter in the $2 billion range. We anticipate procurement.”
CEO Jensen Huang speaks during the Nvidia GTC keynote on Monday, March 18, 2024 in San Jose, Calif. (AP Photo/Eric Risberg) ·Related news organizations
Curtis noted that expectations continue to “creep up” as Nvidia stock is up more than 7% in the last month and more than 180% this year. But Curtis believes the stock will “continue to perform” as Nvidia continues to release its latest AI chip, Blackwell.
Given Nvidia’s weight in the S&P 500, its earnings over the past several quarters are seen as an important catalyst for the overall direction of the market.
And while investors will be listening for clues as to which Big Tech companies will continue to plow money into this AI chip leader, the actual price movement of Nvidia stock after earnings will likely reflect short-term market-wide trends. It is not a barometer of performance.
For example, Nvidia’s (NVDA) August earnings report did not have much of a positive impact on investors, with the stock declining about 6% the day after the earnings release.
However, such negative sentiment did not permeate the market, as the S&P 500 stock index closed flat on the same day. This is the second consecutive quarter that the S&P 500 composite index was out of step with Nvidia after the earnings release.
Since Donald Trump won the Nov. 5 presidential election, some of the market’s biggest winners have reversed course.
The Nasdaq 100 (^NDX) gave back almost all of its gains. The S&P 500 closed Friday below its opening price the day after the election. And the small-cap Russell 2000 (^RUT) index, which soared more than 9% following President Trump’s victory, has now regained about half of its gains.
For small-cap stocks, the story isn’t all that different from a week ago, when Piper Sandler chief investment strategist Michael Kantrowitz said he was concerned about the earnings momentum of the companies included in the index.
“We have certainly seen a pretty steep decline in small-cap margin expectations over the past 20 days,” Kantrowitz said. He added that investors are hoping for earnings to accelerate to signal the beginning of a recovery.
“(It’s) not something we’re seeing yet,” Kantrowitz said. “So we’re going to be monitoring something.”
The small-cap stock movement is emblematic of uneven trading behavior in the two weeks since the election, as the impact of the Trump administration’s policies is still largely unclear.
Scott Kronert, Citi’s U.S. equity strategist, said in a note to clients, explaining the drawdown of the recent market rally: “No major economic developments have been announced, and policy uncertainty remains. “
“We are operating on buoyant sentiment levels and implicit growth expectations that are at their highest level since 2008,” he added. “Overall, there is significant pressure on macro and fundamentals to deliver, which may explain some recent profit-taking following the sharp post-election developments.”
Economic data: October housing starts m/m (-1.4% expected, -0.5% previously). Number of building permits in October, month-over-month (forecast 1.2%, previous -3.1%)
Economic Data: MBA Home Loan Applications, November 15 (0.5% YoY)
Revenue: Nvidia (NVDA), Jack In The Box (JACK), NIO (NIO), Palo Alto Network (PANW), Snowflake (SNOW), Target (TGT), TJX (TJX), Williams-Sonoma (WSM)
Economic data: New jobless claims for the week ending November 16 (previously 217,000). Leading index, October (forecast -0.3%, previous -0.5%). October used home sales month-on-month (forecast +2.3%, previous -1%). Kansas City Fed Manufacturing Activity, November (previously -4)
Revenue: Baidu (BIDU), BJ’s (BJ), Deere & Company (DE), Gap (GAP), Intuit (INTU), Ross Stores (ROST), Warner Music Group (WMG)
Economic data: S&P Global U.S. Manufacturing PMI, preliminary November (48 forecast, previous 48.5). S&P Global US Services PMI, preliminary figures for November (forecast 55, previous 55). S&P Global US Composite PMI, preliminary value for November (previously 54.1). University of Michigan consumer sentiment, final results for November (expected 73, previous 73)
Earnings: There are no notable earnings releases.
Josh Schafer is a reporter for Yahoo Finance. X Follow him at @_joshschafer.
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