President Donald Trump watches as his nominee for Federal Reserve Chair, Jerome Powell, steps to the podium during a press event in the Rose Garden of the White House on November 2, 2017 in Washington, DC.
Drew Angerer | Getty Images
Talk about an eventful week.
If the Fed cuts interest rates, that would normally be the big story.
However, Thursday's Federal Reserve meeting pales in comparison to Tuesday's presidential election, which saw a winner before the sun rose the next morning.
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Performance since market close on November 1st
Stock markets' reaction to Republican Donald Trump's victory over Democrat Kamala Harris on Wednesday was swift and powerful DowThe S&P 500 and the Nasdaq at all-time highs. The Fed's rate cut the next day was the icing on the cake for market bulls, with gains for the S&P 500 and the Nasdaq. The Dow was flat on Thursday. On Friday, the Dow surpassed 44,000 for the first time ever and the S&P 500 surpassed 6,000 for the first time ever. They closed just below that level. All three stock benchmarks ended the week with closing record highs.
For the week, the Dow and S&P 500 each gained more than 4.6%. They had their best weeks of the year and their first positive weeks in the last three years. The Nasdaq rose 5.7% for the week. While the tech-heavy index's weekly rise was the strongest of the three, it was only the best since September. This week, the top five sectors were consumer discretionary, energy, industrials, financials and information technology.
S&P 500 sectors for the week
| sectors | WTD change | YTD change |
|---|---|---|
| Consumer Discretionary | 7.62% | 22.81% |
| energy | 6.16% | 12.16% |
| Industrial stocks | 5.93% | 24.41% |
| Finance | 5.53% | 30.46% |
| Information technology | 5.44% | 36.14% |
| Communication Services | 3.72% | 34.93% |
| Property | 2.67% | 9.35% |
| Healthcare | 1.57% | 9.95% |
| Materials | 1.46% | 9.99% |
| Utilities | 1.20% | 24.72% |
| Consumer Staples | 1.20% | 14.31% |
Source: FactSet
- Last week we sold shares of the industrial laggard Honeywell three times in strength and lowering the position to a level that Jim Cramer said wouldn't hurt us. On Wednesday, when it's already running Wells Fargo And Morgan Stanley Both rose by double digits after Trump's victory, but our discipline required us to take some profits, which we did. BlackRock, one of our newer holdings, didn't participate in Wednesday's rally in financial stocks and so bought some of the bank stock proceeds and bought more shares of the world's largest asset manager.
Last weekend we said that the risk to the market is not so much who wins, but that the winner is decisive. That's exactly what we got.
But Wall Street has traditionally favored long-term gridlock in Washington, a situation created by a divided Congress or the White House controlled by one party and the Capitol by the other. The exact combination remains open. While the presidential race was quickly decided and Republicans had flipped the Senate, there were still House races too close to call, according to NBC News. As of Sunday afternoon, Republicans needed to win six of them to gain the majority.
Only time will tell how the balance of power will develop and whether it will be good or bad for the stock market. However, we know that Trump likes to judge himself based on how the market performs. During Trump's first term, from Inauguration Day 2017 to his last day in office, the S&P 500 gained 67%. Barring disaster, President Joe Biden and Vice President Harris Trump will pass the baton to a healthy economy with moderate inflation and a strong stock market.
There are two government inflation reports coming out next week that Wall Street and the Fed will be watching closely. The winning season is coming to an end and there are only two club names left: Home Depot And DisneyReport quarterly results.
Business
The big economic report of the week, the consumer price index for October, comes out before the opening bell on Wednesday. Economists expect the consumer price index to rise 2.6% annually, slightly faster than in September, according to estimates compiled by FactSet. The core rate, which excludes volatile food and energy prices, is expected to rise 3.3% year-on-year, in line with the previous month. The accommodation component of the CPI, which accounts for about a third of the total index, will also be in focus given the ongoing costs of property inflation.
- The October producer price index, out on Thursday, is not as closely watched as the consumer price index, but could influence markets. Monitoring monthly PPI readings remains important as they provide insight into what wholesale prices companies are paying (often referred to as input costs) and whether they need to increase consumer prices to protect their margins. Economists expect headline PPI to rise 2.3% annually and the core rate to rise 2.9% year over year, according to FactSet.
- Other data points this week include October retail sales and October industrial production, both released on Friday. Retail sales give us an overview of the state of consumers and where they are focusing their purchasing power in the lead-up to the holiday shopping season. About two-thirds of the country's economy is driven by consumer spending. The monthly industrial production and capacity utilization report provides insight into the long-stressed manufacturing, mining, and electric and gas utilities industries.
Result
For Home Depot, which reports its third-quarter results before the opening bell on Tuesday, we want to hear what management on the ground is seeing in the housing market.
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Home Depot YTD
We know that longer-term bond yields have risen, pushing mortgage rates higher again – so the benefit of more house building leading to more sales of construction and renovation products may still be being crowded out. We were encouraged to see bond yields fall on Thursday and Friday after peaking on Wednesday. We hope this remains the case as the Fed eases monetary policy and market odds favor another rate cut in December.
- Additionally, the recovery process from Hurricanes Helene and Milton will likely result in an increase in Home Depot sales, some in the quarter under review and likely even more so in the future as insurance claims materialize and homeowners look to rebuild. Still, we'll wait and expect Home Depot to be a key beneficiary once the housing market truly begins to recover. Consensus estimates Friday called for Home Depot third-quarter sales of $39.24 billion and profit of $3.64 per share.
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Disney YTD
Disney reports before the close on Thursday, and its experiences business will be in focus as it has weakened recently due to recent hurricane activity that caused theme park closures in Florida and inflation-weary consumers. The Summer Olympics, which took place in the city this quarter, are expected to have some negative impact on Disneyland Paris.
- However, Disney's direct-to-consumer business should be a better story as profitability improves. Major content releases such as the new season of the critically acclaimed television series “The Bear” and the film “Inside Out 2,” which grossed nearly $1.7 billion in theaters worldwide, should help with subscriber numbers. Consensus estimates Friday call for Disney to report fiscal fourth-quarter revenue of $22.44 billion and profit of $1.10 per share.
week ahead
Monday, November 11th
- Premarket Earnings: Monday.com (MNDY), Aramark (ARMK)
- After the bell: IAC (IAC)
Tuesday, November 12th
- Before the bell rings: Home Depot (HD), Shopify (SHOP), Hertz (HTZ), Tyson Foods (TSN), AstraZeneca (AZN)
- After the Bell: Spotify (SPOT), Occidental Petroleum (OXY), Rocket Companies (RKT), Skyworks (SWKS)
Wednesday, November 13th
- 8:30 a.m. EST: Consumer Price Index
- After the Bell: Cisco (CSCO), Beazer Homes (BZH)
Thursday, November 14th
- 8:30 a.m. ET: Producer Price Index
- 8:30 a.m. ET: Initial jobless claims
- Before the bell rings: Disney (DIS), JD.com (JD), Advance Auto Parts (AAP)
- After the Bell: Applied Materials (AMAT)
Friday, November 15th
- 8:30 a.m. ET: Retail sales
- 9:15 a.m. ET: Industrial production and capacity utilization
- Before the Bell: Alibaba (BABA)
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