Key Takeaways

Housing in focus next week, along with GDP and key inflation reading

Japan’s inflation grew more than expected in October, helping send U.S. yields higher 

Major indexes on track for fourth straight week of gains, but light holiday volume expected

(Friday market open) Black Friday dawns with major U.S. stock indexes on track for their fourth straight week of gains, Treasury yields edging higher, and a pause in Middle East fighting. There’s a slight upward bias in premarket trading ahead of an early close, while next week features inflation data and an OPEC meeting.

Trading at the New York Stock Exchange ends at 1 p.m. ET today. Volume could be thinner than normal, which sometimes exacerbates moves. Anyone thinking of trading should consider exercising extra caution or simply waiting until Monday.

Dramatic moves were few and far between on Wednesday as the S&P 500® Index (SPX) and the Nasdaq-100® (NDX) traded in narrow ranges much of the session before closing with light gains for the sixth time in seven sessions. The SPX posted its highest close since the 2023 peak on July 31. It’s now less than 1% below 4,600, a point that’s formed key technical resistance for nearly two years.

Attempts at that level today might be written off as not too meaningful considering likely thin volume, and volume on Wednesday was light, too. Assuming bullish trends continue, next week might be a more interesting time to watch for potential traction when a full house returns.

Notably, however, the market’s made progress in terms of breadth, meaning the rally isn’t all fueled by a handful of mega-caps. Wednesday saw advances lead decliners on the NYSE by a large margin. And nearly three quarters of SPX stocks now trade above their 50-day simple moving averages. Communications services and technology were among the strongest performers Wednesday, while food and beverage companies were also firm. Energy shares weakened after OPEC postponed its meeting until next week (see more below).

Morning rush

The 10-year Treasury note yield (TNX) rose 5 basis points to 4.47%.The U.S. Dollar Index ($DXY) is slightly lower at 103.65.Cboe Volatility Index® (VIX) futures remain near two-month lows at 13.WTI Crude Oil (/CL) fell slightly to $76.57 per barrel.

Stocks in spotlight

Black Friday comes: The National Retail Federation (NRF) expects 182 million people to shop in-store and online from Thanksgiving Day through Cyber Monday this year, up by 15.7 million from last year. The NRF says holiday spending is expected to reach record levels, growing 3% to 4% to between $957.3 billion to $966.6 billion. By comparison, last year’s holiday sales totaled $929.5 billion. 

Earnings from companies like Amazon (AMZN), Target (TGT), Walmart (WMT), Apple (AAPL), Best Buy (BBY), and Macy’s (M), among many others, could ultimately benefit if holiday shopping proves stalwart. Check next week to see if the NRF has a postgame wrap-up, and it’s always possible we could hear from retailers about early shopping season tallies.

Deere (DE) shares fell Wednesday after the agricultural equipment maker’s outlook fell short of Wall Street’s expectations. Deere’s report implies that U.S. ag equipment sales have peaked for now, research firm Briefing.com said, in sync with a recent drop in crop prices. When farmers get less for their crops, they often spend less on equipment.

Airlines got a nice lift Wednesday as holiday travel finally topped pre-pandemic levels, according to the Transportation Security Administration (TSA). Tuesday saw 2.64 million passengers pass through U.S. airport security checkpoints, up from 2.37 million a year ago and from 2.43 million on the same date in 2019. However, analysts say business travel hasn’t returned to 2019 levels.

Shares of tech giant Nvidia (NVDA) backtracked in premarket trading after the media reported that the launch of one of the company’s artificial intelligence (AI) chips in China might be delayed.

What to watch

Peek ahead: The holiday break from U.S. data ends Monday morning with October New Home Sales. The report follows a surge in mortgage applications this week as the average rate fell below 7.5%. Still, mortgage applications remain down about 20% from a year ago.

New home sales and homebuilder stocks have been hot this year despite high rates, partly due to the shortage of existing homes. However, new home prices fell recently as builders began using discounts to lure buyers. Consensus for the headline October New Home Sales is a seasonally adjusted annual rate of 730,000, down from 759,000 in September, according to Trading Economics.

Personal Consumption Expenditures (PCE) prices next Thursday could end up among most influential data points of the week. It comes at an auspicious time, following rate-friendly October consumer and producer price reports that helped fuel this month’s stock and bond rally. The Fed watches PCE closely, so a hot reading could potentially push up yields and hinder stocks.

Yet Federal Reserve policymakers recently emphasized that the road back to their 2% inflation goal won’t necessarily be without bumps, so investors probably aren’t doing themselves any favors by getting too positive or negative over any one data point. It’s the trend that matters, and for inflation, it’s been downward most of the year.

That said, a recent jump in consumer expectations for future inflation captured by Wednesday’s University of Michigan Consumer Sentiment report probably doesn’t sit well with the Fed. All year, Fed Chairman Jerome Powell has said inflation expectations remain “well anchored.” The recent bump likely reflects higher gas prices in September and October, so the Fed could likely watch where that reading goes now that gas prices have retreated. The 10-year yield climbed after the data and remains up this morning, while the futures market dialed back chances for a March rate cut.

Price pop in Japan: Overnight Japanese inflation data might also help explain this morning’s higher U.S. yields. The consumer price index there rose 3.3% in October, up from 3% in September, contributing to ideas that the Bank of Japan (BoJ) might tighten its monetary policy in coming months. Higher yields in Japan would potentially mean less demand for U.S. Treasuries, which move opposite of their yields.

Other key reports next week include the government’s second estimate of Q3 Gross Domestic Product (GDP) and the Institute for Supply Management’s (ISM) Manufacturing Index for November. We’ll discuss both in more detail following the weekend.

Crude unleashed: Eyes turn to the crude oil market next Thursday when OPEC holds the meeting it delayed. The surprise rescheduling hinted at possible disagreements about further production cuts, and the oil market took this as a bearish signal.

Top producer Saudi Arabia has been disciplined in keeping production down by one million barrels a day and may want the rest of the cartel to cut production further. That may not sit well with smaller OPEC producers struggling with a 20% price drop from September’s peak. Arguably, Saudi output cuts haven’t been enough to prop oil, and the Middle East war initially raised prices before becoming less of a market factor.

Eye on the Fed

Early today, futures trading pegged chances at 95.3% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following the December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC’s January 30–31 meeting are 90%. The market prices in chances of the Fed cutting rates 25 basis points by its March meeting at 23%.

CHART OF THE DAY: RUNNING BEHIND. The Dow Jones Transportation Average ($DJT-candlesticks) is often seen as a helpful barometer of the broader economy and consumer demand. It’s made some strides since bottoming late last month but is not close to summer peaks. That contrasts with the S&P 500 Index (SPX-purple line), which is approaching highs reached in July. Data source: S&P Dow Jones Indices.Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Calendar

Nov. 27: October New Home Sales

Nov. 28: November Consumer Confidence and expected earnings from Hewlett Packard Enterprise (HPE) and CrowdStrike (CRWD).

Nov. 29: Q3 GDP-Second Estimate, Fed Beige Book, and expected earnings from Dollar Tree (DLTR), Foot Locker (FL), and Hormel (HRL).

Nov. 30: OPEC meeting, November Chicago PMI, October Personal Spending, October Personal Income, October Personal Consumption Expenditure (PCE) prices, and expected earnings from Kroger (KR), Salesforce (CRM), and Dell (DELL).

Dec. 1: November ISM Manufacturing.

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