Key Takeaways
- Stocks Slide Amid Rising Interest Rate Concerns And Market Profit-Taking Last Week
- Nvidia’s Earnings Could Shape Market Sentiment Amid Chip Sector Weakness
- Fed Comments, Holiday Retail Earnings Dominate This Week’s Market Outlook
Stocks struggled last week and gave back a chunk of their post-election gains. The S&P 500 which fell 1.4% on Friday, dropped 2% for the week. The Nasdaq Composite in on a five-day losing streak and lost 3% last week. The Dow Jones Industrial Average had the best week of the major indices, dropping just 1%. However, small cap stocks took it on the chin, dropping 4% last week and are currently on a four-day losing streak.
Despite the broader indices being down on the week, there were some pockets of strength. Financial stocks gained 1.5% last week. Energy stocks also rallied 1%, despite oil falling over 5.5% last week.
One of the reasons for last week’s pullback could be something I’ve been discussing, which is interest rates and the long end of the curve, specifically. In a speech last week, Federal Reserve Chairman Jerome Powell hedged on further interest rate cuts. Citing the strong economy, Powell said the need for future cuts or the pace of future cuts may need reconsideration. As of Friday, the CME Fed Watch Tool was assigning around an 62% chance of a quarter-point cut when the Fed meets next month. That is down from a 72% chance back in October. We’ve already seen longer-term rates rise quite a bit over the last couple months and as I’ve cautioned, if there is a dark cloud on the horizon for stocks, it’s interest rates.
Looking at the week ahead, we don’t have a lot of economic data. What we do have is a lot of Fed members speaking. Given Powell’s comments last week, I expect whatever this week’s speakers say to be heavily scrutinized with the next Fed meeting just a month away.
While the economic data will be light, we do have some interesting earnings. Lowe’s, Walmart, Target and Gap will all report. Entering the busiest shopping season of the year, the outlooks provided will be likely receive the most attention. But the biggest name scheduled to announce will be Nvidia on Thursday, after the close. We’ve seen some weakness in chip stocks since the election and on Friday alone, Nvidia was down well over 3%. Even though I continue to believe most investors are more focused on policy or deregulation, Nvidia’s earnings have the potential to move the market and could serve as reassurance the Artificial Intelligence (AI) is still kicking. Entering Monday, the expected move for the week in Nvidia is a little over $13.5, according to tastytrade.
Some other interesting items of note include Tesla. Shares of the automaker are up 7.5% in premarket on rumors the Trump transition team is looking at ways to reduce regulations on self-driving vehicles. According to an article in The Wall Street Journal, last week, U.S. equity traded and mutual funds saw their second biggest inflow of funds since 2008. At the same time, the American Association of Individual Investors reported the percentage of investors who are bullish stands at 49.8% while those investors who were more neutral in their outlook fell to its lowest level since 2022. Nvidia shares are lower by nearly 3% in premarket on news their Blackwell AI chips are overheating in servers.
For today, I’m watching two things. First, although we saw volatility jump on Friday, it still remains right around its historical mean. I’ll be paying attention to see if Friday’s jump was just a one-day event or if we’re looking at something more. At the same time, I’m interested to see if investors come in to buy last week’s dip or if we’re seeing some sort of an unwind before the end of the year. Either way, I would stick with your investing plan and long-term objectives.
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