WEEKLY MARKET SUMMARY
Global Equities: US stocks registered their first weekly loss in four weeks as investors took profits on the artificial intelligence trade. The tech-heavy Nasdaq Composite fared the worst of the major US large cap indices, falling -3.0% in its worst week since April. The S&P 50 slipped -1.6% and the Dow Jones Industrial Average pulled back -1.2%. US small cap stocks also struggled, losing -1.9% during the weekly session. Developed market international stocks, which contain less technology sector exposure than their US counterparts, were relative outperformers in limiting the damage to just -0.2%. Emerging market stocks fell in tandem with US markets, ending the week -1.4% lower.
Fixed Income: Treasury yields were mostly unchanged during the week, with the 10-Year yield continuing to hover around 4.1%. A lack of economic data during the government shutdown has kept investors guessing over the state of the US economy, but a December rate cut is still the most likely outcome according to Federal Funds Futures markets. There is a 65% likelihood that the Fed cuts rates according to data from CME Group.
Commodities: US West Texas Intermediate (WTI) crude oil prices slipped during the week amid oversupply concerns, settling at $59.75 as of Friday afternoon. Hungary obtained a one-year exemption from sanctions to buy oil from Russia following a meeting between Hungarian President Viktor Orban and President Trump. Gold prices recovered from a recent selloff and reclaimed the $4,000/oz mark.
WEEKLY ECONOMIC SUMMARY
Supreme Court Weighs in on Tariffs: The Supreme Court took up a case this week brought by US small businesses arguing against the legality of President Trump’s tariffs issued under the Emergency Economic Powers Act. The crux of the dispute is whether tariffs constitute a tax on the American people. Trump’s Solicitor General John Sauer admitted, when pressed, that American businesses and consumers bear the overwhelming majority of the tariff burden. The admission was critical since Trump has repeatedly denied that tariffs are a tax on US citizens and claims foreign countries are paying the US. Several justices warned of the slippery slope of ceding power to the President to act unilaterally by exploiting the broad language in the Emergency Economic Powers Act. The ruling may take a while to be determined and would result in the messy process of the Federal Government rebating tariffs collected from businesses. Markets rallied during the hearing in hopes that the tariffs could be struck down, although Trump has other options to implement tariffs if he loses the case.
Most Layoffs since 2008: With the government shutdown delaying most official economic data during the week, investors keyed in on private data, including a job market report from executive outplacement firm Challenger, Gray and Christmas. The Challenger Jobs Report showed monthly job cuts hit a 20-year high for an October of 153,000, and quarterly layoffs were the highest since 2008. While DOGE cuts were the main driver, technological advances are also driving layoffs with automation of warehouses and artificial intelligence cited as major contributors as well. Average monthly hiring is down dramatically this year at just 48,000, which is the lowest since 2011.
Earnings Season Update: The week kicked off with results from Palantir (PLTR), which has become the poster child for the AI-exuberance trading at a trailing P/E multiple of well over 600 times earnings. Palantir grew earnings by 110% and raised guidance, but shares were crushed in a combination of profit-taking and short-selling. Discount brokerage Robinhood (HOOD) also traded lower post-earnings, despite doubling sales on a 300% surge in cryptocurrency trading revenue. Other stocks fared better, such as Applovin (APP), which gained nearly 9% on a strong quarter. Over 90% of the S&P 500 have reported earnings, and blended EPS (using reported and anticipated results) indicates earnings rose 13% year-over-year.
CHART OF THE WEEK
The Chart of the Week is a 10-year view of monthly job cuts data from Challenger, Gray and Christmas. Investors and economists have been without official weekly and monthly employment data since October 1st, and thus have relied on private companies like ADP and Challenger to fill in the data gaps. The last official reading on unemployment from the Bureau of Labor Statistics was 4.3% in August. The Chicago Federal Reserve estimates unemployment to have risen to 4.4% in October. The Fed faces a very difficult decision in its December meeting, as inflation is also accelerating and cutting rates to stem unemployment risks triggering even higher inflation.
Commentary from VestGen Investment Management.