Last Week
It was a small (cap) world after all, at least for Wall Street, as the S&P Small Cap Index rallied 2% while the S&P 500 lost 0.6%. Once again, AI and Fed policy were the determining forces. Shares of Oracle and Broadcom both suffered as investors questioned the capital required and the potential return on investment for the AI buildout. Meanwhile, a dovish spin on the hawkish rate cut by the Fed generated excitement in the small-cap markets. Specifically, the Fed’s announcement that it would buy Treasury bills to the tune of $20 billion a month looked, smelled, and tasted like quantitative easing, despite Chairman Powell’s assurance that it was simply preparing for April’s tax season. In the words of William Shakespeare, “a rose by any other name would smell as sweet”.
Advancing issues outnumbered declining issues by a factor of 5 to 4, with an even split between winning and losing industry sectors. The Basic Materials sector led the leaderboard, with the Telecom sector faring the worst. Gold continued to glitter, pushing up 2% to $4300/ounce, while Crude Oil slid 4% lower, and the Dollar drifted down marginally. The yield on the 10-year Treasury edged up 5 basis points to 4.19%, reaching a 3-month high. The 10-2 Treasury spread jumped 9 basis points to 0.67%, its highest level since early 2022. An upward-sloping curve is a positive sign for future economic activity, according to most forecasters.
The biggest winners of the week were the shares of cannabis companies following indications that President Trump is getting set to use an executive order to instruct federal agencies to reclassify marijuana as a less-regulated Schedule III drug from a Schedule I. In other words, out of a group that includes heroin and into a lower tier of less dangerous drugs, such as steroids and Tylenol with codeine.
On the Chicago Sports Scene, the Bulls snapped their losing streak with a victory over the Hornets, but then fell to the lowly Pelicans in their next game. Meanwhile, on a frigid day at Soldier Field, the Super Bowl-bound Bears demolished the Cleveland Browns 31-3. Bring on the Packers!
This Week
On Tuesday, the Bureau of Labor Statistics will release jobs data for November as well as some data from October that was delayed due to the government shutdown. The forecast predicts a modest increase in nonfarm payrolls, as the labor market continues to exhibit signs of weakening.
The Census Bureau will also release Retail Sales data on Tuesday, which is expected to show 0.2% growth, consistent with the recent trend.
The final data release of the week will come on Thursday when the BLS releases the consumer price index for November. Inflation has been sticky around 3%; any deviation from that level would impact markets.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.