- The Dow Jones Industrial Average closed at its highest weekly close since December 31, 2021 and is only 157 points away from an all-time weekly closing high.
- Small Caps Continue to Rally. Now eyes turn to the small caps. The Russell 2000 gained 3% last week after a 5% gain the week prior, but is still lagging far behind its large cap peers.
YOUR WEEKLY ROADMAP
After a November to remember that saw the S&P 500 have its best month of the year, how are we going to top things in December?
Odds are there’s little to no chance, but reaction to Jerome Powell’s predictable comments on Friday got us off to a good start and kept the momentum in the bull’s favor as we kicked off December.
This week we lack that oomph of data that normally moves markets. The one economic data point to keep an eye on is Friday’s unemployment number. The major earnings reports have subsided for now and traders are hoping recent broadening trends can continue ahead of next week’s FOMC meeting and CPI report.
Watching New Highs. The Dow Jones Industrial Average closed at its highest weekly close since December 31, 2021 and is only 157 points away from an all-time weekly closing high. The Nasdaq 100 is trading at a 52-week high and sits 4% away from its all-time highs. The S&P 500 is a mere 0.3%, or 13 points away, from a 52-week high. It is now less than 5% away from its all-time peak of 4,818.62.
Small Caps Continue to Rally. Now eyes turn to the small caps. The Russell 2000 gained 3% last week after a 5% gain the week prior, but is still lagging far behind its large cap peers. However, it broke above some key technical levels and seems poised to join the party.
The iShares Russell 2000 ETF (IWM) has been mired in a long and rather wide two-year sideways range (in pink). The ETF just broke above its midpoint last week and finally closed higher than its 200-day moving average.
The tailwind of a rate pause and hopes of a cut as the Fed stands pat could keep that momentum going. If so, they may be able to join the other indexes in the new high party. A rally of 4% would equate to its August peak and a rally of 8% would bring it back to the top end of its two-year long range.
Unemployment Data. On Friday we get unemployment data that should remain inline with last month’s 3.9% reading according to economists consensus estimates. This is the highest level since January 2022, but still near historical lows as seen in the chart below.
It will be interesting to hear reaction if there is a number that surprises to the upside and brings us to 4% inflation. Will the recession talk heat up again? There is one interesting indicator to watch that many in the recession camp are monitoring and that is the Sahm Recession Indicator.
Simply stated, the Sahm indicator signals the start of a recession once the three-month moving average in the unemployment rate rises by a ½ percentage point or more above the recent low. In this case, the low was 3.4% in March and a second reading of 3.9% or more will put those following this indicator on alert.
As seen in the chart above, the indicator is slowly ticking up and has led to official recessions every time the Sahm signal has been triggered.
S&P 500 Reshuffle. Late Friday afternoon S&P Global announced three additions to the S&P 500 Index. Watch a surge in shares of Uber Technologies (UBER), Jabil (JBL) and Builders FirstSource (BLDR) as investment and fund managers have to add these names to their portfolios.
With three additions to the index, that means there are three deletions. Those companies leaving the S&P 500 include Sealed Air (SEE), Alaska Air (ALK) and SolarEdge (SEDG).
Earnings. A few trendy names report this week including GameStop (GME), Lululemon (LULU) and pet retailer Chewy (CHWY).
Stocks in Focus…
Docusign (DOCU), once a darling of the Covid pandemic, now trades right above all-time lows. The electronic signature provider has traded lower after six of its last eight earnings reports.
Above is an all-time weekly chart of DOCU. It has failed to trade above its 50-week moving average since December of 2021. Each time it gets near the mark it fails. The range has also narrowed as the stock has a solid level of support around its initial pricing around $39.
They continue to look for that next catalyst to get shares pointed in the right direction.
Shares are down -17% year-to-date and -86% from their all-time highs. We will see if they get that needed boost when they report on Thursday.
Toll Brothers (TOL). Home builders have been on a tear this year and TOL has been no exception. The Philadelphia construction specialist is up 75.8% year-to-date and looks to build on those gains.
They have consistently beaten analyst EPS estimates going back to May of 2020. The stock has traded higher after nine of its last 11 reports. They report after the close on Tuesday.
Broadcom (AVGO). Last quarter shares of AVGO traded lower by -5.5% which snapped a winning streak of 10 quarters where the stock traded higher after reporting earnings. Despite the minor set back, shares remain on a tear this year as they are up 66%.
Economic Calendar
Wednesday - ADP Unemployment 8:15
Thursday - Jobless Claims 8:30
Friday - Unemployment Rate (3.9% expectation); Consumer Sentiment 10:00
THE WEEK THAT WAS
The party continued on Wall Street last week. Not only did we celebrate New York City’s oldest tree lighting tradition as we lit the NYSE tree for the 100th time (fun fact - Rockefeller Center celebrated only its 91st lighting), the indexes kept their weekly winning streaks going as well.
November Stats. It was the best month for the market since July 2022, and one of the best November gains over the last 100 years. Here’s a snapshot of what led the major three indices. The rally was so strong that the Dow only had three of its 30 members lose ground for the month.
PCE. The Fed’s preferred inflation metric matched analysts expectations. October’s core numbers rose 0.2% and 3.5% from a year ago. The inline numbers continue the slow downward inflationary trend which helps fuel the argument that a hike in interest rates is no longer on the table. In fact, the probability of a rate cut is growing more and more.
According to the CME group, there is practically zero probability of a hike at any of the next two meetings and a 75% chance of a cut by May of 2024.
R.I.P Charlie Munger. If there was ever a Mount Rushmore of financial icons over the last 100 years then Charlie Munger has earned his place there. The tributes have been coming far and wide as his influence over the investing community will have an impact for years to come.
Fed Speak. The consensus amongst the slew of Fed officials making the speaking rounds last week is that the Fed has done enough at this time to battle inflation.
It was Fed Chair, Jerome Powell, that caused the biggest reaction in the market. He didn’t say anything off script or new. He stayed with his typical lines of watching data point by data point and we still have a 2% inflation goal and will remain nimble. The market shrugged off his narrative that their work may not be done yet and rallied on his speech. The biggest winner after his commentary were the small caps which gained almost 3% on Friday alone.
Heat Map. It’s very interesting to see the megacaps in bright red this week, yet the overall indexes were able to climb higher without their participation. Its a true indication of market rotation at work. Alphabet (GOOG) and Meta Platforms (META) were a big drag on the communications sector, but not the overall market.
The real strength was in some of the most beaten down sectors as regional banks, retail, real estate, industrials and material stocks led the broad based rally. So while there is a lot of big red on the board, the majority of the market was able to do the heavy lifting.
STOCKS IN THE NEWS
Crowdstrike (CRWD) had never missed analyst expectations coming into a quarterly report. They kept that winning streak going and exceeded the high bar last week when they reported results that beat. The stock rallied 11.6% for the week.
The cybersecurity giant is now up 123% year-to-date and has gone almost full roundabout from its April 2022 peak to its January 2023 trough. It closed right under its 2022 peak and still has another $63 to go before an all-time high.
General Motors (GM) announced plans to buyback $10 billion in stock. They also hiked their dividend by 33% and reinstated guidance. Both GM and Ford (F) had stopped giving guidance after the union labor strike. GM said the new labor deal will increase costs by roughly $9.3 billion. Shares of the automaker rallied 15.2% on the week, but remain lower by -2.8% year-to-date.
Tesla (TSLA). The long awaited and much anticipated debut of Elon Musk’s Cybertruck made its first deliveries to a handful of customers after years of delays. The rollout continues to remain slower than anticipated while reservations are now being taken for next year.
Regardless of the excitement, there were a few key points that caught many off guard. The cost was more than many had initially anticipated at anywhere between $79,990 and $99,900. Also the battery range is expected to get 340 miles a charge versus the expectation of 500 miles.
While the truck looks like something I made back in my Cub Scout Pinewood derby days, it still generated a lot of buzz. Despite the hype, shareholders were left unimpressed as the stock fell -2% after the reveal. Tesla shares still managed to eke out a gain of 1.4% this week and are up 94% for the year.
Salesforce (CRM) was one of the Dogs of the Dow heading into this year and has done a full 180 in 2023. The cloud-based software giant surged 15.9% this week after beating on both the top and bottom lines and guided iots revenue forecast higher by 10%.
They also announced an AI partnership with Amazon (AMZN). According to their release and Bloomberg reports, they “will deepen integrations between their offerings. Salesforce will begin supporting Amazon Bedrock .. where customers will gain access to models that have a variety of possible applications, from content to drug discovery.”
MARKET STATS
Another week of gains led by the Russell 2000. It followed up last week's 5% gain with another 3% rally.
The rotation into many of the laggards like small caps left the Nasdaq 100 as the worst performing index. Even so, it managed to finish the week strong and squeeze out another positive finish. The index is up a remarkable 46.2% year-to-date.
SECTOR WATCH
We were one sector away from having all 11 sectors rise for the third time in four weeks. The one laggard was Communications (XLC) which couldn’t keep up with the rest of the market and dropped by 1.5%. Fear not, that move was a mere flesh wound as the sector is still the second best performer of 2023 with a gain of 46.6%.
We did see some new leadership last week as the rally broadened out. Real Estate (XLRE) led all indexes for the first time all year with a gain of 4.7%. Other sectors with gains of over 2% on the week included Materials (XLB), Industrials (XLI) and Financials (XLF).
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