Weekly Trader's Outlook

If you read last week's blog from my colleague Joe Mazzola you might recall that his outlook for this week was essentially slightly bullish for the half of the week with the potential for some consolidation in the back half of the week. Joe called the first half of the week correctly, but we didn't experience much consolidation in the back half of the week. The SPX encountered some dips throughout the week, but those instances were largely met with buyers, resulting in a ~1.5% gain on the week (at least at the time of this writing). Perhaps in a bit of a surprise, this week's push higher came without the assistance from AI-leader Nvidia, which reported quarterly earnings on Wednesday. The chip maker beat on both the top and bottom line and provided guidance that surpassed consensus estimates, but only slightly so. For the upcoming quarter, Nvidia said that Q4 revenue is expected to be $37.5B, plus or minus 2%, versus the $37.09B LSEG consensus estimate. The modest revenue "guidance beat" follows last quarter's ~$0.5B guidance beat and both times the stock traded to the downside post-earnings. Nvidia doesn't seem to be indicating that there is any letup in AI demand, whether its Hopper or Blackwell chips, but perhaps the analysts are beginning to catch up with the company's growth trajectory. In any event, stocks have been able to climb higher without a lot of help from the technology sector. Yes, Information Technology is up 2.5% over the past 20 days (behind Financials, Energy, Industrials and Consumer Discretionary), but the semiconductor sector is down by ~1% over that same timeframe. Perhaps the recent underperformance in chips is due to concerns around tighter export restrictions to China by the incoming administration. Regardless of the potential impact of any changes to economic policy by the upcoming administration, optimism around the potential positive impact from policy changes appears to be dominating market psychology in the near-term.

At the time of this writing (1:30 p.m. EST), all the major indices are trading near the highs of the session (DJI + 360, SPX + 22, COMP + 42) as the "melt-up" mode remains intact. Next week is Thanksgiving week, which means that stocks will only have three-and-a-half days of trading rather than five. If history is any guide, it also suggests lighter volume, which means the potential for higher volatility is also there. From a seasonality perspective, November is a bullish month for stocks and "Thanksgiving Week" tends to be an up week more often than not. The earnings calendar is relatively light next week, though we'll hear from high-profile tech companies DELL, CRWD and WDAY on Tuesday. On the economic front we'll get PCE Prices on Wednesday which is the Federal Reserve's preferred inflation gauge. Lastly, one other interesting development that I've got on my radar is the recent rally in the U.S. Dollar's (DXY), which has pushed the greenback above prior resistance (~107) to the highest levels since mid-2022. A stronger Dollar is generally bullish for U.S. stocks, though if the velocity of the move is too swift it can create near-term market volatility. Taking everything into consideration, bullish seasonality, bullish technicals, a strong fundamental backdrop and a friendly Fed leave me in the bullish camp for next week. Therefore, my forecast for next week is "bullish." What could challenge my outlook? A "leg up" in bond yields (4.50% looks to be a key level for the 10-year) and/or a hotter-than-expected PCE report, which would likely push yields higher, are the most likely culprits in my mind. I'm not concerned about the rise of the U.S. Dollar, not yet at least, since markets don't appear to be concerned with today's breakout.

Other Potential Market-moving Catalysts:

Economic:

• Monday (11/25): no reports
• Tuesday (11/26): Consumer Confidence, FHFA Housing Price Index (FHFA), New Home Sales, S&P Case-Shiller Home Price Index
• Wednesday (11/27): Advanced International Trade in Goods, Advanced Retail Inventories, Advanced Wholesale Inventories, Durable Goods, Continuing Claims, EIA Crude Oil Inventories, EIA Natural Gas Inventories, GSP – Second Estimate, Initial Claims, Mba Mortgage Applications Index, PCE Prices, Pending Home Sales, Personal Income, Personal Spending
• Thursday (11/28): no reports
• Friday (11/29): no reports

Earnings:

• Monday (11/25): Bath & Body Works Inc. (BBWI), Agilent Technologies (A), Zoom Video Communications Inc. (ZM), Woodward Inc. (WWD)
• Tuesday (11/26): Analog Devices Inc. (ADI), Best Buy Co. (BBY), Burlington Stores Inc. (BURL), Dick's Sporting Goods (DKS), Abercrombie & Fitch Co. (ANF), Dell Technologies Inc. (DELL), CrowdStrike Holdings Inc. (CRWD), Workday Inc. (WDAY)
• Wednesday (11/27): no reports
• Thursday (11/28): no reports
• Friday (11/29): Frontline PLC (FRO)

It was a relatively light week on the economic front and some familiar themes surfaced from the reports that were released. Specifically, the services side of the economy remains strong, Initial Claims continue their downward trend, though Continuing Claims remain elevated. Here's the breakdown from this week's reports:

• S&P Global US Composite PMI: came in at 55.3 in November, up from 54.1 in the prior month and above the 54.3 economist's had modeled. The November PMI represents the fastest expansion of business activity since April of 2022. (Note: A reading above 50.0 represents economic expansion while below 50.0 indicates contraction).
• S&P Global US Services PMI: came in at 57.0 in November, above the 55.2 expected. This represented the strongest expansion since March of 2022.
• S&P Global US Manufacturing PMI: remained in contraction territory at 48.8, in line with estimates and slightly above 48.5 in the prior month.
• Existing Home Sales: rose by 3.5% month-over-month to 3.96M units in October, rebounding from the 14-year low of 3.83M in the prior month. However, October's reading represents the first year-over-year gain (+2.9%) since July of 2021.
• Initial Jobless Claims: 213K, down 4K from the prior week, below the 220K expected, and representing the lowest level since April. Continuing Claims climbed to 1.908M from 1.873M last week, and above the 1.873M expected.
• The Atlanta Fed's GDPNow forecast for Q3 was revised slightly higher to 2.6% on November 19th from 2.5% on November 15th.

Shorter-term bond yields saw some lift while longer-term yields were flat to slightly down this week. Compared to last Friday, two-year Treasury yields are up ~6 basis points to a three-month high of 4.36% from 4.30% while 10-year yields are currently down slightly to 4.410% from 4.428.

Expectations around future Fed rate cuts continued to come ease this week. Currently, Bloomberg probabilities are suggesting a 55% chance of a 25-basis-point cut at the December FOMC meeting, down from 58% last Friday. Keep in mind that this probability was 92% a month ago. Looking further out in time, probabilities are now suggesting 50-75 basis points of cuts between now and the end of 2025 versus roughly 175 basis points of cuts just a month ago.

Following a one-day close above the 6K level back on November 11th the S&P 500 index (SPX) entered a period of healthy consolidation which brought the index to its 20-day Simple Moving Average (the white line in the chart below). If you are bullish this is the kind of price action you like to see. The next level of support is the 50-day SMA (the green line in the chart below) while near-term resistance appears to be less than 1% above current levels at the 6,000 level. Near-term technical translation: bullish

Similar to the SPX, the Russell 2000 (RUT) pulled back to its 20-day SMA and bounced off this moving average earlier this week. This is bullish price action and potentially sets the index up for a re-test of the three-year closing high of 2,434, hit back on November 11th, next week. However, the RUT uptrend could get challenged if bond yields continue to climb higher, so that "bears" watching. Near-term technical translation: slightly bullish

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP) and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages. Stocks grinded modestly higher this week and market breadth slightly expanded as a result. On a week-over-week basis, the SPX (white line) breadth lifted to 72% from 69%, the CCMP (blue line) held steady at 45% versus 45%, and the RTY (red line) ticked up to 61% from 58%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average or new highs vs. new lows.

This Week's Notable 52-week Highs (338 today): Affirm Holdings Inc. (AFRM + $2.47 to $68.21), Cameco Corp. (CCJ - $0.79 to $60.14), Crane Company (CR + $1.04 to $184.20), Deere & Co. (DE - $0.82 to $436.72), Lemonade Inc. (LMND - $2.45 to $47.90), Netflix Inc. (NFLX + $5.55 to $903.03)

This Week's Notable 52-week Lows (62 today): Anheuser-Busch Inbev S.A. (BUD - $0.02 to $54.67), Atkore Inc. (ATKR + $5.49 to $90.63), Diageo PLC (DEO + $1.43 to $119.53), Idexx Laboratories Inc. (IDXX + $0.08 to $418.63), Kohl's Corp. (KSS + $0.92 to $17.32), Regeneron Pharmaceuticals Inc. (REGN - $0.24 to $744.26)