Stocks are stalling less than 1% from all-time highs as investors seek new catalysts to drive them to fresh records. Waning AI sentiment has led to tech shares underperforming as participants react to anecdotal evidence that sales of applications associated with modern technology have failed to meet internal expectations at Microsoft.
Meanwhile, Meta is enacting significant budget decreases in its Metaverse unit. Rising interest rates aren’t helping equities either, as outplacement firm Challenger, Gray & Christmas reported declining plans to trim workforces last month, while the government released the lowest number of initial unemployment claims in 38 months during the week of Thanksgiving. Yields are indeed climbing and paring back Wednesday’s gains following those two prints, which have fixed-income watchers balancing statistics that signal lightening layoffs against data from ADP and Revelio depicting a consistent trajectory of job losses in the second half of this year. Treasury action can intensify further on Friday, with the Fed’s preferred price pressure gauge due before the bell while UMich is scheduled to publish its critical inflation expectation figures intraday tomorrow.
Small-Cap Rally Continues
But despite the cost of capital expanding, the cyclically oriented Russell 2000 is the only major domestic equity benchmark sporting a meaningful gain so far on Thursday; it’s higher by 0.7%, as the small-cap index is sustaining its recent momentum and is poised to rally in an environment of looser financial conditions helped by a projected 25-bp cut on Wednesday alongside a still solid economy.
Other Investment Categories Are Mixed
Furthermore, performance across sectors is split; volatility protection instruments, the greenback and bitcoin are relatively unchanged. Elsewhere, forecast contracts are catching bids, especially as it relates to next week’s monetary policy decision, while commodities are mixed. Crude oil, lumber and gold are appreciating; however, silver, copper and natural gas are retreating.
Layoffs Drop to Lowest Level Since 2022
Unemployment claims have plummeted in the past two weeks, with the initial segment dropping to its lowest level since September 2022. First-time applications dropped to 191k last week, well below the median estimate of 220k and the previous report’s 218k. Continuing filings also declined, falling to 1.39 million during the seven-day period ended November 22, below projections of 1.60 million and the previous period’s 1.943 million. Four-week moving averages for both indicators declined, from 224.25k and 1.952 million to 214.75k and 1.945 million. Separate numbers from Challenger, Gray & Christmas indicated that layoff plans dropped to 71.3k last month, from 153.1k in October.
The Week Will End with Two Critical Reports
The Russell 2000 is poised to set a new record if gains persist on Thursday or if Friday’s economic data is conducive to another robust advance. The delayed Personal Income & Outlays report from September and this month’s Consumer Sentiment print from the University of Michigan (UMich) are on deck to finish the week. In line with weaker results on the former, alongside slowing inflation expectations within the latter, can catapult the index to heights never seen before. Indeed, the path for the small-cap, cyclically oriented benchmark would widen if two to three rate cuts next year become three to four, as long as the reductions are motivated by softening cost pressures and employment risks, rather than an actual manifestation of increased joblessness. Conversely, if rapid policy accommodation is a response to meaningfully higher unemployment or cratering household spending, then the basket won’t appreciate much from here. A contained expansion and lighter yields are the perfect combination for the broadening trade that disproportionately benefits the Russell.
International Roundup
Euro Area Retailing Was Flat in October
October retail sales in the euro area were 1.5% higher in real terms than during the year-ago period, but were flat relative to September, according to Eurostat. The year-over-year print accelerated from September’s 1.2% result but missed the economist consensus estimate of 1.4%.
The monthly pace matched estimates but slowed from 0.1% in September. For this metric, non-food products, except for the automotive fuel category, were the culprit, logging a 0.2% month-over-month (m/m) decline. Sales volumes for the two other broad categories, food, drinks, tobacco and automotive fuel, both climbed 0.3%.
While Construction Decline in Europe Slows
The contraction of the construction industry in the eurozone continued at a considerable pace in November but eased slightly from the preceding month, with the HCOB Eurozone Construction Purchasing Managers Index (PMI) Total Activity Index climbing from 44 to 45.4. A less pronounced decline in new orders helped push the headline up.
UK Construction Plunges
The United Kingdom Construction (PMI) index sank from 44.1 in September to 39.4 last month, falling deeper below the 50 threshold that separates contraction from expansion. Residential construction fell to pandemic levels, and in other discouraging developments, job layoffs accelerated, sentiment sank, and input costs, including wages, grew.
Gold Drives Australia Trade Surplus Higher
Australia’s trade balance grew from $3.7 billion in September to $4.38 billion in October but missed the economist consensus estimate of $4.4 billion. October exports were up 3.4% m/m, largely a result of non-monetary gold shipments soaring 14.2%. General merchandise increased only 1.9%. Within this category, non-rural goods, which include metals, ores, transportation equipment, minerals and machinery, were up 2.1%. Rural goods, which consist primarily of agricultural products such as meat, grains, wool and sheepskins, climbed only 0.9%. Imports, meanwhile, climbed 2% m/m with purchases of non-monetary gold up 80%.
By José Torres, Senior Economist at Interactive Brokers LLC
