Daily market snapshot

• Stocks start the week higher – Major equity markets rose on Monday, regaining some of their losses from last week. Sector performance was broad, as energy and communication services stocks led markets higher. In global markets, Asia was mixed, as markets await the Bank of China's interest-rate decision on Wednesday and inflation data from Japan on Friday. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil was up following an escalation in Ukraine and a production disruption in Europe*.
• Focus turns to NVIDIA results as corporate earnings season winds down – Artificial intelligence (AI) leader NVIDIA will release its third-quarter earnings results on Wednesday, with estimates calling for earnings per share of $0.75. With 92% of companies having reported, earnings are on pace for about 5.4% growth year-over-year. Results have been strong relative to expectations, with 74% of companies beating analyst estimates*. Earnings growth has been broad, with seven of the 11 sectors delivering higher earnings*. The sectors forecast to have lower earnings – energy, industrials, materials and utilities – represent about 17% of the market capitalization of the S&P 500*.
• Bond yields edge lower: Bond yields declined modestly, taking a break from their trend higher over the past several weeks. The 10-year Treasury yield has risen about 80 basis points (0.80%) since the recent low in September, as bond markets have reduced expectations for Federal Reserve (Fed) interest-rate cuts**. Yields have also been driven by higher bond market inflation expectations, currently about 2.35% over the next 10 years, measured as the difference between Treasury note and Treasury Inflation Protected Securities (TIPS) yields***. The Fed's dual mandates of maximum employment and stable prices are returning to better balance as the labor market normalizes from a period of outsize strength and inflation gradually moderates, which should keep the Fed on track to continue cutting rates, though the pace is likely to slow, in our view.

Brian Therien, CFA
Investment Strategy 

^{Source: *FactSet ** CME FedWatch *** Federal Reserve Bank of St. Louis}

• Stocks post a losing week, reversing half of the post-election gains - Major indexes remained on the defensive today, with stocks pulling back after the strong post-election rally last week. The Fed may take its time to ease policy, and rate-cut expectations have been trimmed, which is driving stock and bond volatility higher. The tech-heavy Nasdaq lagged, while the Dow and the utilities sector outperformed. Elsewhere, Asia markets were mixed after China retail sales expanded at their fastest pace in eight months, indicating easing pressures in the economy*. Crude oil was lower and ended the week down almost 5%, as the International Energy Agency is forecasting a surplus in 2025 on robust U.S. production*.
• Cautious Fed messaging pushes yields higher - Treasury yields continued to see upward pressure this week, as the outlook for the Fed's rate-cutting cycle has been shifting. Jerome Powell signaled yesterday that the Fed is in no rush to cut interest rates, suggesting that policymakers could be open to skipping a meeting before lowering their policy rate again. Stocks yesterday pulled back in response to these comments, and bond markets lowered expectations for another rate cut next month, with the odds falling to less than 60% from roughly 80% a day earlier*. Given the stronger economic and inflation data in recent months, we think that there is no urgency with the pace of rate cuts, especially when considering the potential effect of various pro-growth but potentially inflationary policies coming from the new administration. Nonetheless, because the gap between the fed funds rate and inflation remains wide, we think that there is scope for rates to decline further next year, but possibly toward 3.5% - 4.0% instead of the 3.0% - 3.5% that we previously expected. Next month's decision may be a close call, but there is another set of inflation and employment data before policymakers meet again on December 17-18 that will help inform the decision.
• Retail sales indicate solid but slowing consumption - October retail sales increased 0.4% month-over-month, while September's number was revised higher to 0.8% from 0.4%. Strong vehicle sales boosted growth, but the underlying trend was more muted, with control-group sales – which exclude autos, gasoline, building materials and food services – falling 0.1% vs. consensus for a 0.3% increase*. While that was weaker than expected, the upward revisions to the prior months still point to strong consumer-spending growth in the last quarter of the year. Falling gas prices, solid income gains, and appreciating asset prices will likely continue to support consumption, which is one key reason why we think the economic expansion and bull market will extend through 2025.

Angelo Kourkafas, CFA 
Investment Strategist

^{Source: *FactSet}

• Stocks take a break from post-election rally – Major equity markets closed lower on Thursday, with small- and mid-cap stocks trailing large-cap stocks. Sector performance was broadly lower, as only energy and technology stocks posted gains. Bond yields were up, with the 10-year U.S. Treasury yield near 4.45%, as Federal Reserve (Fed) Chair Jerome Powell commented that the Fed doesn't need to be in a hurry in cutting interest rates*. In global markets, Asia was mostly lower, while Europe was up. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil was up following a sell-off in recent days*.
• Key producer inflation measures edge higher - Producer price index (PPI) inflation rose to 2.4% annualized in October, slightly above estimates for 2.3%. Core PPI, which excludes more-volatile food and energy prices, ticked up to 3.1% on a year-over-year basis, compared with forecasts calling for 3.0%*. We believe these readings are consistent with inflation that continues to moderate gradually, though the path lower will likely be bumpy, at times potentially slower than market expectations. This progress should keep the Fed on track to continue its interest-rate-cutting cycle, though the pace will likely begin to slow as the central bank aims for a soft landing, in our view.
• Jobless claims tick lower: Jobless claims declined to 217,000* this past week, below expectations for about 224,000. We believe this reading reflects a resilient labor market that is gradually normalizing from a period of outsized strength. Employers appear to be slowly pulling back on hiring but not turning to significant layoffs. With unemployment of 4.1%, disposable income should be sufficient to support continued consumer spending going into the holiday season. A cooling labor market should also lead to slower wage gains ahead, which typically help ease inflation.

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet}

• Stocks little changed following inflation data – Equity markets closed near the flatline Wednesday following consumer price inflation data that was in line with expectations. Most sectors of the S&P 500 finished the day flat to higher, with energy, real estate and consumer discretionary outperforming.* Information technology and communication services sectors were among the laggards, which led to underperformance in the tech-heavy Nasdaq Index.* After a strong start to the day, the rally in U.S. small-cap stocks fizzled out, with the Russell 2000 Index closing lower by about 0.6%.* Overseas, Asian markets were mostly lower overnight, while European markets closed lower as well. Bond yields finished the day mixed, with the 2-year U.S. Treasury yield falling to 4.27% while the 10-year U.S. Treasury yield ticked higher to 4.45%.*
• Inflation data in line with expectations – Headline consumer price index (CPI) inflation rose by 0.2% in October and 2.6% year-over-year, both in line with expectations.* Core CPI, which excludes food and energy, rose by 0.3% in October and 3.3% year-over-year, also both in line with expectations.* The 0.3% monthly change in core CPI is the third consecutive month with a 0.3% gain and pushes the three-month annualized change in core CPI to 3.6%, up from a low of 1.6% in July.* While we expect that inflation will continue to trend lower over the coming months, recent data shows that the path lower may not be in a straight line. Market expectations are calling for an 80% probability of a Fed rate cut at the December meeting, which we'd view as a reasonable expectation.** However, strong economic growth suggests that there is no need for urgency from the Fed to accelerate the pace of rate cuts. Bond markets have reflected this view and are now pricing in only three 0.25% Fed rate cuts from now until the end of 2025.**
• Focus turns to the consumer - With consumer price inflation in the rearview, market focus will turn to consumer-spending trends, with retail sales for October out on Friday.* Consensus expectations are for retail sales to rise by a healthy 0.3% month-over-month, a modest downtick from the September reading of 0.4%.* Control-group retail sales - which excludes more volatile components such as spending at auto dealers, gas stations and building-material dealers – is also expected to rise by 0.3% in October.* Despite higher borrowing costs compared with recent history, consumer spending has proved resilient and has been the driving force behind strong U.S. economic growth in recent quarters. In our view, easing but healthy labor-market conditions and strong household balance sheets create a supportive environment for consumers, which should help extend the economic expansion.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg} 

• Stocks finish lower – U.S. equity markets finished modestly lower on Tuesday, with the S&P 500 snapping a streak of five consecutive days of positive returns.* From a leadership standpoint, the technology and communication services sectors outperformed, while most other sectors finished lower.* Small-cap stocks underperformed today as well, with the Russell 2000 shedding over 1.5%, reflecting a risk-off tone in equity markets.* Bond yields closed sharply higher, with the 10-year U.S. Treasury yield rising 0.13 percentage points to 4.43%, while the 2-year Treasury yield climbed to 4.34%.* On the economic front, the NFIB Small Business Index rose to 93.7 in October, below the 30-year average of over 97 but tied with the July reading for its highest since 2022.* In the commodity space, oil prices were little changed, finishing around $68 per barrel, while gold prices fell by roughly 0.4%.*
• Key inflation data on the horizon – Inflation will be the main focus for markets this week, with October consumer price index (CPI) inflation out tomorrow and the producer price index (PPI) out on Thursday. Economists expect headline CPI to rise by 2.6% on an annual basis, while headline PPI is expected to rise by 2.3%, both higher than the prior month.* Core CPI, which excludes the food and energy components, is expected to hold steady at 3.3% annually.* Markets are currently pricing in a roughly 65% probability of a 0.25% Fed rate cut at its December 18 meeting.** We'd align with consensus that another 0.25% rate cut from the Fed in December is likely. However, given the U.S. economy remains on strong footing, a hotter-than-expected CPI reading tomorrow could lead to a pause at the December meeting.
• Bond yields resume upward trend: After taking a breather in the prior week, bond yields rose again today, with the 10-year Treasury yield closing just above the 4.4% mark.* Since the Fed first cut interest rates on September 18, the 10-year Treasury yield has risen by roughly 0.7%.* In response, U.S. investment-grade bonds have struggled, declining by nearly 3% since September 18.* In our view, the rise in Treasury yields has been attributable to a combination of resilient U.S. economic growth and higher inflation expectations, as measured by the five-year breakeven inflation rate.* This has led to a subsequent reduction in expectations for Fed interest-rate cuts over the coming year, with markets now expecting the Fed's target rate to end 2025 at roughly 3.9% compared with expectations of 2.9% in early October.** With central banks easing policy, our view is that there will be limited upward pressure on intermediate and longer-term yields. We'd recommend investors consider reducing overweight allocations to cash and short-term bonds and add to intermediate- and longer-term bonds.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg 
U.S. investment-grade bonds measured by Bloomberg U.S. Aggregate Bond Index}