November 27th Market Overview

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Happy Wednesday everyone.

Reporting in from the Bahamas today. Markets are pulling back ahead of the Thanksgiving holiday, with major indices snapping their recent winning streaks.

Classic Holiday profit taking imho. I think it has something to do with the peace of mind over the holidays. Taking a little bit of risk off before enjoying the turkey can go a long way.

PCE inflation data aligns with expectations, keeping Fed policy expectations steady.

Let’s dig in…

Executive Summary

• S&P 500 snaps seven-day winning streak (▼ 0.41%) as investors take profits ahead of Thanksgiving holiday
  

• Tech stocks lead declines with $DELL and $HPQ both dropping over 12% on weak PC demand outlook going into holiday season.
  

• PCE inflation data meets expectations at 2.3% annually, keeping Fed policy trajectory steady
  

• Treasury market shows strong demand at 7-year auction with yields retreating to 4.24%, lifting rate-sensitive sectors

Market Overview

Key Market Drivers

1. Inflation Data: PCE price index rose 0.2% monthly and 2.3% annually, matching consensus forecasts and supporting Fed’s current stance
   

2. Labor Market Strength: Initial jobless claims fell to 213,000, marking the lowest level in seven months, signaling continued economic resilience
   

3. Tech Sector Rotation: Investors shifting from high-performing tech stocks toward smaller caps and value plays, impacting market leadership
   

4. Holiday Trading: Pre-Thanksgiving positioning impacts market dynamics with lighter trading volume, setting up for shortened week

Stock Spotlight

• $URBN: ▲ 19% after beating Q3 expectations with EPS of $1.10 vs. $0.86 forecast. Management expressed optimism about holiday demand
  

• $HPQ: ▼ 13% following disappointing guidance of $0.70-0.76 EPS vs. $0.85 expected, marking worst session since May 2020
  

• $DELL: ▼ 12% after issuing weak PC sales forecast despite positive AI-related commentary
  

• $DDOG: Received price target increase to $175 from Bank of America, citing strong product adoption

Big Name Updates

• $NVDA (▼ 3.2%) tops declines among Magnificent Seven, though up 168% in 2024
  

• $META (▼ 1.0%) pulls back while maintaining 60% YTD gain
  

• $GOOGL (▼ 0.2%) and $AAPL (▼ 0.3%) outperform broader tech sector
  

• $CRM, $IBM, $AMZN, $CSCO, $MSFT lead Dow component losses
  

• Magnificent Seven ETF ($MAGS) (▼ 1.00%) reflects ongoing rotation to value stocks

Sector Watch

Bond Market

Treasury yields continue their downward trend, with the 10-year yield settling at 4.24%. The day’s 7-year Treasury auction showed demand, particularly in the “belly” of the curve.

Bond prices demonstrated strength across middle-term maturities, with investors showing clear preference for 2-7 year notes over longer-dated securities. The successful auction signals strong investor confidence in medium-term government debt as the new administration roles in.

Policy Watch

• Core PCE data matches expectations at 0.3% monthly and 2.8% annually, supporting current Fed trajectory

• President-elect Trump’s proposed 10% tariff on Chinese imports and 25% on Mexico/Canada creates market uncertainty

• Recent Fed minutes indicate gradual easing path ahead, though timing remains dependent on economic data

• Market participants closely monitoring potential impact of proposed tariffs on retail sector margins

What to Watch

1. Holiday Retail Performance:

• Black Friday and Cyber Monday results will provide insights into consumer spending patterns

• Early indicators from retailers like $URBN (+20%) suggest strong consumer behavior

• Focus is on companies with significant exposure to potential tariff changes

2. November Jobs Report:

• Next Friday’s report could influence December Fed meeting decisions

• Current jobless claims suggest continued labor market strength

• Wage growth trends remain critical for inflation outlook

3. Tech Sector Dynamics:

• Monitor continuation of rotation from mega-cap tech to smaller caps

• Watch semiconductor stocks following $NVDA’s notable decline

• AI-related commentary from tech earnings calls could impact sector sentiment

4. Bond Market Trends:

• Treasury auction demand may signal shifting investor risk appetite

• Rate-sensitive sectors like Real Estate showing positive response to yield moves

• Keep watch on middle-term versus long-term yield spreads

Thanks for reading 🙂

- John

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