- Last Week: With more gains last week, November was the best month of the year for U.S. stocks, with major indices hitting all-time highs. Inflation showed signs of cooling but at a slower pace.
- Looking Ahead: November’s Employment Report is expected to show a rebound, with 190,000 new jobs projected and wage growth holding steady at about 4% year-over-year.
- Investor Sentiment: Investor optimism is high, with strong market inflows and talk of a potential "melt-up," but history cautions against sentiment extremes. Maintain cautious optimism by staying invested, diversified, and disciplined.
Looking Back at Last Week
Last week capped off a remarkable November in the markets, with major US stock market indices closing at all-time highs. It was the best month of the year for the stock market, with the S&P 500 climbing nearly 6%. However, the real story was in small-cap stocks, which surged an impressive 11% in November, significantly narrowing the year-to-date performance gap with their large-cap counterparts. Bonds also had a good week. Interest rates moved lower, with the 10-year Treasury yield falling nearly a quarter of 1% to end the week just below 4.2%.
Despite the Thanksgiving holiday, it was a busy week for economic data. The PCE index, a key inflation gauge closely monitored by the Federal Reserve, rose to 2.3% in October from 2.1% in September. The core PCE index, which excludes food and energy, increased 0.3% month-over-month and 2.8% annually, up from 2.7%. These figures suggest that while inflation continues to cool, the pace of decline is slowing, potentially influencing the Fed's next moves.
Last week, housing data painted a mixed picture, but consumer confidence shone brightly. The Conference Board’s Consumer Confidence Index reached a 16-month high, signaling robust sentiment heading into the holiday season. Speaking of holidays, retail trends are in focus. Black Friday set new records, with U.S. consumers spending around $11 billion online, a 10% increase from last year.
Looking Ahead This Week
As for what’s ahead this week, the economic calendar is packed, headlined by Friday’s November Employment Report. November’s report is expected to bounce back from the hurricane and the labor strike impacted numbers in October, with economists forecasting 190,000 new jobs. The unemployment rate may tick up slightly to 4.2%. Wage growth is expected to continue at 0.4% month over month, maintaining a 4% annual pace. Also on tap are key labor-related reports and ISM indices. Manufacturing remains in contraction territory, while services continue to expand. These reports, along with remarks from Federal Reserve officials and the release of the Fed’s Beige Book, could provide more clarity on the central bank’s outlook for interest rates.
Investor Sentiment
There have been plenty of financial headlines of late noting that investor sentiment has turned noticeably bullish. Flows into the market have also been strong, and there’s even chatter of a potential “melt-up,” where prices could surge in the short term. What is driving this optimism? Many are pointing to the pro-business policies expected under President-elect Donald Trump, including the recent nomination of Scott Bessent as Treasury Secretary, tax cuts, and deregulation. Even before the election though, the economy demonstrated resilience, and that momentum appears to be holding. From a seasonal perspective, this time of year is also traditionally strong for the stock market. However, given the current individual investor sentiment backdrop, history reminds us to temper exuberance. Markets often underperform in the months following extreme individual investor bullish sentiment. Interestingly though, last week’s AAII sentiment survey showed a notable rise in bearish expectations, suggesting some investors are adopting a more cautious stance.
Add it all, stay invested, stay diversified, and stay disciplined. The current environment calls for cautious optimism—a mindset that balances the opportunities of a strong market with the potential risks of sentiment-driven volatility. If you have any questions or comments, please let us know at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust, and we will be back next week with another update.