It’s America first when it comes to stock market performance. The S&P 500 registered its 52nd record close of the year on Tuesday, and even the Nasdaq managed to eke out a gain, even though Dell and HP reported slower sales on sluggish demand for PCs. Dell’s share price dropped by 1.6% on its sales report, while HP also registered a decline. The record high in the S&P 500 is not being driven by the big tech stocks, instead, the equal weighted S&P 500, which strips out the effect of the Magnificent 7, has outperformed the market cap weighted S&P 500 for the past week, which is a sign that the stocks market rally is broadening out as we move to the end of the year.
A strong Black Friday is key to boost broader stock market
The US stock market narrative is starting to shift. Amazon was one of the top performers on Tuesday, as we wait for Black Friday. Sales are expected to reach a record, with more than $270bn expected to be spent in the US this weekend alone. Analysts are expecting a record-breaking weekend for retail sales. If that happens, then we could see a strong run for consumer discretionary stocks into the end of the year.
Oil price reacts to ceasefire
News of a 60-day ceasefire between Lebanon and Israel has seen the price of Brent crude oil fall by more than $2 in the last 2 days. There hasn’t been much of a premium added to the oil price while the geopolitical situation in the Middle East has been escalating. Thus, now that it appears to be de-escalating, we may not see much further downside. The oil price did not react to the unsurprising news that Opec+ is considering delaying bringing more production online. The cartel has lost its bite in 2024. Partly because some of its members ignore its edicts and pump oil anyway, and partly because a win for Donald Trump is likely to see the US produce even more oil, meaning that the world will be awash with oil in 2025, even though demand is expected to remain constrained.
Trump’s tariff hawk
Trump has made more picks for his cabinet, including the trade representative, Jamieson Greer. He was a protégé of the tariff tzar in Trump’s first term as president, Robert Lighthizer, and he is seen as trade hawk. This suggests that tariffs will be at the heart of Trump’s trade agenda. However, it is worth noting that as trade representative, Greer’s office will be overshadowed by the US Treasury. The new Treasury secretary, Scott Bessent, is moderate on tariffs, and has espoused free trade ideals in the past. This suggests that Trump’s tariff talk may be more bark than bite, although Greer’s appointment is a nod to the trade hawks in his team.
Fed joins BOE with gradual approach to rate cuts
Chinese shares are higher on this news, and the CSI 300 is up by more than 1.5% on Wednesday. European shares are still expected to open lower, although FTSE 100 futures are pointing to a stronger open later this morning. It should be quiet for the rest of the week as the US celebrates Thanksgiving, and we could see volumes dwindle, with little direction in markets. Tuesday’s FOMC minutes have triggered a mild response in the Fed Fund Futures market, there is now a 66% chance of a rate cut next month. The minutes suggest that the Fed are treading a cautious path on rate cuts, but if the economy continues to move in line with their expectations, then it would be appropriate to cut rates gradually. The BOE and the Fed seem to be singing from the same song book when it comes to gradual rate cuts.
The dollar is losing some of its bite on Wednesday, which is giving the pound a chance to recover. GBP/USD is moving towards $1.26, but it is struggling to break above this level. The prospect of a balanced approach from the new US administration when it comes to tariffs and global trade could lead to a mild risk on tone on Wednesday, and the dollar may retreat further. However, we think that volumes will be too small to trigger a major change in trend, and that the dollar will continue to be king of the FX space for some time.
Ahead today, there is little economic data. We will be watching to see how far the euro and the pound can recover. Will bitcoin continue to extend gains, and will this help to boost Super Micro Computer, which was the weakest performer on the S&P 500 on Tuesday?
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