Schwab Market Update

Published as of: December 13, 2024, 9:19 a.m. ET

(Friday market open) Stocks in the U.S. have been uneven in recent sessions, including a drop for all three major indexes last time out, but the equity measures were trying to end the week on a high note as futures rose, with Broadcom (AVGO) setting a positive tone.

On the economic data side as the week drew to a close, the Bureau of Labor Statistics said U.S. import prices were up 0.1% in November compared with the previous month, led by higher fuel prices. Export prices for the month were unchanged from October. Declines in both import and export prices had been expected. Earlier this week, inflation and jobless claims delivered a murky picture. Some aspects of inflation stayed sticky while others, including housing, gave ground even as claims topped estimates and reinforced ideas of labor softness. November's Personal Consumption Expenditures (PCE) prices data are due late next week after the Federal Reserve meets.  

"The jump in unemployment claims bears watching to see if it's a one off or a trend in what's to come," said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research. "The Producer Price Index figures were worse than anticipated but the categories that feed into PCE suggest that PCE, which is the Fed's preferred measure, will trend lower."

1. Hawkish message possible from Fed: Despite yesterday's relatively hot PPI and Wednesday's mixed Consumer Price Index (CPI) that both showed inflation far from fully tamed, the market still dials in high odds of a 25-basis point rate cut from the U.S. Federal Reserve meeting that will wrap up this coming Wednesday. But the language accompanying it from  Fed Chairman Jerome Powell may not be what bulls want to hear, like any caution about future cuts. Economic and rate projections may get additional attention. Odds of a follow-up cut in January slipped to 23% in the CME's FedWatch tool after PPI, and chances of consecutive January and March trims were just 14%. The wild card is the labor picture, which the Fed doesn't want to see worsen due to rates staying too high for too long even as inflation and strong economic growth make future rate cuts tougher to contemplate. It's a narrow squeeze for policy makers.
2. Treasury volatility grabs attention: The U.S. 10-year Treasury note yield climbed Thursday after a hotter-than-expected November PPI report and has ascended swiftly from its recent low of 4.15% despite relatively firm auction demand. It now trades about midway between recent lows and highs. Yields are likely to stay choppy for a while, said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research, as the market assesses the "push-pull" of sticky inflation and a softening labor market. Today's import and export price data might help set the yield direction into the end of the week, while a 30-year bond auction yesterday saw uneven demand and hurt the longer end of the yield curve.
3. Tech helps set positive tone: The semiconductor sector helped fuel a rally earlier this week on the back of rate cut hopes. It could once again be the difference maker today following earnings from chip giant Broadcom (AVGO), whose shares were surging after it reported its latest results, which included a big advance year-over-year in AI revenue growth. Other stocks in the semiconductor space were on the positive side ahead of the day's open, including Nvidia (NVDA), Advanced Micro Devices (AMD), and Micron (MU), the latter of which is expected to report its quarterly results next week. Meanwhile, the PHLX Semiconductor Index (SOX), may benefit from the moves. The index slipped in the last trading session, but it is up 19.3% this year. However, that trails the gains for both the Nasdaq and the S&P 500.

• Salesforce (CRM) was gaining ground early following word of an upgrade at Keybanc. The firm has a $440 price target on Salesforce, which closed last at $358.03. In the premarket, the customer relationship management software maker's stock added 2.2%. With two weeks remaining in 2024, shares of Salesforce have climbed 36% year to date.
• Adobe (ADBE) was steadier a day after its steep drop, ticking ahead 0.3% before the open. Although it was a mild gain, during the last trading day the creative software developer saw its stock sink more than 13% amid disappointing guidance. Shares of Adobe now have a loss for the year of 20.4% and are well below their 52-week high of $638.25.
• RH (RH) was an early winner before the last trading session of the week, with a gain of more than 13% in the premarket. That move upward followed financial news from the seller of home furnishings that cheered investors, including a forecast of 18% to 20% revenue growth for the fourth quarter. The shares have gained more than 30% year to date.

Hotter M&A ahead? Mergers and acquisitions (M&A) could have an impact on small caps and other regions of Wall Street next year. Though several recent M&A attempts got squashed by the U.S. government, notably Kroger's (KR) attempt to buy Albertsons (ACI), it wouldn't be surprising to see more mergers as the new administration rides into Washington, D.C., promising less federal interference in business. Small cap stocks could be targets for large companies, especially with credit spreads extremely low, valuations at a premium for large caps versus small caps, and interest rates falling. There's also talk on Wall Street that next year might see the market for initial public offerings (IPOs) finally heat up again after several years of doldrums.

The annual reconstitution of the Nasdaq 100^® (NDX—candlesticks) index is expected to be announced after today's close, and a number of well-known companies could be added. The Nasdaq 100 is composed of the 100 largest non-financial companies in the Nasdaq Composite ($COMP). The index currently is on the upswing, trading well above its 20-day moving average (blue line) that's served as technical support on recent pullbacks over the last three months.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

December 16: No major earnings or data expected.
December 17: November retail sales, November industrial production, November capacity utilization.
December 18: November housing starts, November building permits, FOMC rate decision, and expected earnings from General Mills (GIS), Lennar (LEN), and Micron (MU).
December 19: Q3 GDP—third estimate, November existing home sales, November leading indicators, and expected earnings from CarMax (KMX), Conagra (CAG), Darden Restaurants (DRI), FedEx (FDX), and Nike (NKE).
December 20: November personal spending, November personal income, November Personal Consumption Expenditure (PCE) prices, December final University of Michigan Consumer Sentiment, and expected earnings from Carnival (CCL).