Hope you are all doing well. The NASDAQ sustained its third consecutive weekly decline as doubts resurfaced about the resilience of this year’s AI-fueled market rally. The index finished the week down 2.7%. The S&P 500 and the Dow posted smaller declines of just under 2.0%. This week, Fugees rapper Pras Michel was sentenced to 14 years for illegal donations to the Obama campaign. I have broken down this week’s update using lyrics from one of the Fugees hit songs, Ready or Not.
Play my enemies like a game of chess
Federal Reserve speakers “play with the market” by using public statements to influence investor expectations about future monetary policy, particularly interest rates. Recent hawkish comments from several Federal Reserve officials had significantly reduced expectations for a December interest rate cut. Policymakers recently citing inflation risks and a need for more labor market cooling. They had expressed caution and a higher bar for further easing. Shifting the outlook for an interest rate cut at the next U.S. Federal Reserve meeting and fueling market volatility. The previously hawkish comments had cut rate cut expectations for December down to about a 30% chance on Wednesday. Those expectations jumped significantly at the end of the week to over 70% on Friday. The move in expectations came after a dovish statement from New York Fed President John Williams on Friday.
Now that I escape, sleepwalker awake
The other 493 (non Magnificent Seven stocks) in the S&P 500 are starting to wake from their malaise. The overall net profit margin for America’s largest companies rose to the highest level since they began collecting margin data in 2009. Companies in the S&P 500 reported an average third-quarter margin of 13.1%, above the previous record of 13.0% set in the second quarter of 2021. Profit margins have now increased for seven quarters in a row. While the “Magnificent Seven” tech giants achieved 18% earnings growth, the other 493 companies in the index grew earnings by a significant 12%. A much larger share of the non-Magnificent Seven companies exceeded Wall Street expectations than in previous quarters. The wider breadth of earnings growth can support another leg higher in stocks.
I can do what you do, easy
Maybe it’s not so easy to replace the data the government provides. The government is back to work but the backlog of U.S. economic data resulting from the recent government shutdown continued to leave investors and policymakers guessing. The unemployment rate and the Consumer Price Index for October won’t be released because data couldn’t be collected. The government also hasn’t issued a third-quarter GDP estimate. The absence of reliable government data can lead to increased market anxiety and volatility. Global investors and trading partners rely on U.S. economic data, so its absence creates uncertainty that can affect global trade, currency markets, and international investment flows. More importantly, regulatory bodies both domestically and internationally may have to delay reviews or policy formulation that depends on economic performance metrics.
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Have a happy Thanksgiving!
