In the face of signs of a slowing economy, Wall Street processed retail reports and oil’s losses as stocks managed to win on Friday for the third straight week.
While the Dow Jones Industrial Average (^DJI) ended just over the flatline, the S&P 500 (\GSPC) concluded with a 0.13% gain. About 0.08% was gained by the tech-heavy Nasdaq Composite (^IXIC).
Following a ferocious midweek rise in which investors seemed increasingly confident that the Federal Reserve would scale back interest rate hikes, all three US indices gained ground. Softer jobs numbers and lower inflation were interpreted as indicators that the US economy is finally being squeezed by the central bank’s tightening.
Similar signs are noticed by some investors in retailer updates. In its earnings release late on Thursday, Gap (GPS) shared Walmart and Target’s dire predictions for Christmas sales, indicating that the crucial shopping season will be negatively impacted by a decline in consumer spending.
Prior to the OPEC+ meeting later in November, oil prices entered a bear market, another indicator of a downturn. While Brent oil (BZ=F) and West Texas Intermediate crude (CL=F) gained around 4% on Friday, they fell for the whole week after hitting their lowest point in almost four months.
The Chinese e-commerce behemoth’s troubles were brought to light by Alibaba’s (BABA) decision to scrap the spin-off of its cloud subsidiary, which caused its shares to plummet in New York and wipe off more than $20 billion in market value. The move, which Alibaba claimed was motivated by Washington’s chip limits, also demonstrated how strained US-China relations remain following the presidents of the two nations’ unsuccessful summit.
Nvidia (NVDA), the AI darling of Wall Street, is one of the big names that will report profits the next week. The AI tech provider will lead the argument for or against the much-hyped AI tech boom that has lifted several of Big Tech’s biggest firms by providing investors with up-to-date industry data.
Retail market watchers will also receive updated data and projections from major chains, such as Best Buy (BBY), Dick’s (DKS), and Lowe’s (LOW). The group of three comes after a big week of retail earnings, the main theme of which was a weaker, more discriminating customer.
With the release of the Fed’s policy meeting minutes, investors will also have additional understanding of the reasoning and considerations of US central bankers.
Expectations of a “soft landing,” wherein the Federal Reserve can bring inflation down to its objective of 2% without inciting a recession, are growing again. However, Josh Schafer of Yahoo Finance notes that investors have more cause for concern.
It seems that the stock market is pricing in a greater likelihood that the Fed would carry out a “soft landing.” And a whole year’s worth of data has passed since then, in contrast to earlier this year when optimists lost faith in the possibility of a practically flawless tightening cycle. Furthermore, there is increasing agreement that the Fed has finished raising interest rates, the employment market is no longer very hot, and inflation is beginning to decline.
Is it possible for those tendencies to continue? They will, according to chief economist Jan Hatzius of Goldman Sachs, who also notes that consumer spending should continue despite the depletion of surplus reserves and that the trend of disinflation is expected to continue.
Yet, given that the Fed’s “higher for longer” interest rate campaign is predicted to impede economic activity, there is still a case to be made that financial conditions might tighten dramatically. This slowdown may cause job losses, which would then cause layoffs across the board for the industry. This would set off a vicious cycle that would ultimately result in the recession that many have been warning about.
“I don’t think we should be celebrating accomplishing that soft landing until we actually see inflation back close to that 2% target, and the economy is still moving forward,”
The tech-heavy Nasdaq Composite (^IXIC) has gained around 10% so far this month, and some experts think there is further upside before the year ends.
Bullish investors envision tech giants like Apple (AAPL), Microsoft (MSFT), and Google (GOOG, GOOGL) driving portfolios higher as Wall Street adopts a fresh optimism that the Fed’s rising campaign has come to an end.
In a research note released on Friday, Dan Ives and a number of colleagues at Webush stated, “We believe the tech sector is set up for an acceleration of spending around cloud and AI spending that we believe is being significantly underestimated by the Street heading into 2024.” Ives and his co-authors acknowledged the promise of artificial intelligence (AI), which they refer to as a transformative technology.
“We believe the new tech bull market has now begun and tech stocks are set up for a strong 2024 as the AI spending tidal wave hits the shores of the broader tech sector,” the analysts stated.
However, there are still reasons to exercise caution, including as what some perceive to be overvalued valuations and an AI hype cycle that is certain to fall short of expectations. Next week, Nvidia’s (NVDA) earnings report will provide the most recent evidence supporting the benefits of big tech and artificial intelligence.
Despite inflation for quarter after quarter, consumers remained resilient. At last, though, prudence is beginning to replace the unwavering swipe-the-card resistance. Consumers at large box stores are growing more frugal, picky, avoiding expensive things, and postponing purchases these days.
This week’s earnings calls included CEOs painting pictures of a more discerning American customer who is weary of rising prices and struggling to manage concerns about growing credit card debt and depleting savings. Although they exceeded forecasts, major retailers including Target (TGT), Walmart (WMT), and Home Depot (HD) provided cautious outlooks for the upcoming months as shoppers gradually withdrew.
According to updated data from the Commerce Department, retail sales decreased 0.1% in October compared to the previous month, marking the first monthly loss since March.
According to a research note written by Jefferies economist Thomas Simons following the release of the retail sales data, “the pause is likely a sign of further weakness to come,” even though it is somewhat reassuring that spending did not fall off a cliff in October.
Even with diminished consumer power, corporations may be able to outperform their reduced expectations and still generate high profits. However, frugal spending and careful buying will only carry the economy so far.
In a statement, Joshua Bolten, CEO of the Business Roundtable, expressed gratitude to “members of Congress for working together” and expressed the hope that the collaboration would continue when the budgetary discussions get back up the following year.
The 32-page bill avoided another self-inflicted crisis in Washington and prevented a government shutdown that would have threatened to stop TSA employees’ paychecks in the midst of the busy Thanksgiving travel week, among many other consequences. The two phases of the agreement involve funding for some federal agencies, such as the Agriculture and Transportation departments, through January 19, 2024. Just two weeks from now, on February 2, authorization for the remaining portion of Washington’s bureaucracy is scheduled to expire.