Hello, I'm Eric Criscuolo, Market Strategist at the New York Stock Exchange, and this is Market Storylines. Every week, we’re here to keep you up to date on the key trends and events driving global markets. As we record on Thursday afternoon, let’s dive into this week’s Market Storylines.
Over the past few weeks there’s been greater scrutiny on the bullish AI narrative that has driven equities to record levels. In addition, expectations that the Fed would cut rates at the December meeting moved lower, and high momentum and riskier areas of the equity market have come under pressure. Two weeks ago the S&P 500 broke below its 50 day moving average for the first time since it was reclaimed after April’s Tariff Tantrum. Last Friday equities threatened to go into the weekend with a sell-off, but the S&P 500 rallied nearly 1.5% off the day’s lows to finish around unchanged. The streak of closing above the 50 day average was left intact as that key level was defended by the Bulls- Wall Street, not Chicago.
Unfortunately, the good vibes from the rally on Friday didn’t carry over into this week. The support at the 50-day average gave way, and this time the S&P closed below it to end the six-plus month streak.
The AI scrutiny and wobbling of other areas were manifesting ahead of a major market event this week. Nvidia earnings. You may have heard of them. The recent pullback has been like a Thanksgiving meal feeding the “AI bubble” narrative. Maybe there was some concern about Nvidia’s earnings heading into the print, but I think we got what was really expected- blowout numbers and management confidence that continues to climb to new heights. If you were looking for any signs that the AI investment freight train was losing steam, you had to look elsewhere.
Nvidia opened up 5% today and the rest of the AI complex saw similar strength. The S&P and Russell 2000 were up over 1%. With the weakness coming into the event, that initial move, a sigh of relief, was the easy part. Now, holding on to those gains, like saving room for Thanksgiving dessert, would be the hard part. Apparently, the market didn’t loosen its belt. While we got used to dips being bought, today the move back above the 50-day was sold. Like Chino from Deftones sings, “And when you think you know me right I switch it up.”
As we record this we’ve made not only the weekly low, but have now put support at the 100-day moving average in play as the S&P tests that important level. The weakness is broad-based. The defensive Consumer Staples sector is the only one substantially positive today and among the best performers this week. Utilities and Real Estate are around unchanged today among the better performers this week as well.
For the week the S&P is currently down over 2%. Consumer Discretionary and Tech are the worst performing sectors, while Communication Services and Consumer Staples are the best performers. Comm Services’ performance is heavily skewed by Alphabet’s strength, which is up over 5% this week after it released its latest Gemini AI model.
One outcome that could help contain any significant damage is if flows rotate into sectors like Healthcare, which despite recent strength still has plenty of room to run given its longer-term underperformance. It can also be an area where risk-averse, generalist and higher-risk flows can migrate to given the broad composition of the sector. While the S&P is trying to bounce off the 100-day average, another thing to keep an eye on is tomorrow’s options expiration and the resulting shift in hedges and volatility positioning.
The momentum fade and risk-off action that has hit equities was previewed by the crypto complex. Bitcoin started to pull back from all-time highs in early October and the selling pressure has ramped up the past two weeks. It has since fallen through all 3 major moving averages and just fell below 90 thousand on its way to 85, back to mid-April levels. It’s also now negative for the year. Eth has been hit even harder.
While crypto crumbled, yields were largely unchanged for most of the week, but they’re moving lower today. That move was kickstarted after the very delayed September jobs report showed a surprisingly strong increase, countered by an uptick in the unemployment rate due to an increase in labor force participation. Meanwhile initial jobless claims fell, but continuing claims increased. The data was broadly positive for the labor market, which would normally be Hawkish and move yields higher. However as we noted, yields have moved LOWER today and rate cut expectations have moved higher. Part of that could be the uptick in the unemployment rate, as well as data from earlier months that was revised lower. The next major employment report will be released AFTER the next Fed meeting on December 10. That scheduling, plus today’s data, and the recent hawkish commentary and FOMC minutes, are giving both Doves and Hawks seats at the rate decision dinner table.
We noted the weakness in crypto but on the other side of things is the Dollar. The US Dollar index has reclaimed the 100 level. The Japanese Yen in particular has weakened against it and is definitely not exhibiting any of its flight to safety characteristics, all while Japanese yields climb higher. It’s another trend to closely monitor as an overly strengthening Dollar can lead to significant moves across assets classes.
This has been a somewhat gloomy summary of the week, so let’s close out with a look ahead and some good news. Next week will be a short one. Not only will markets be closed Thursday for Thanksgiving, but Friday will be a half day with equity markets closing at 1pm. We’ll get employment data from the new, weekly ADP employment report and the official weekly jobless claims. PPI data for September will released, but this is very old data that was delayed due to the shutdown, and likely won’t have much impact. Other data will include Pending Home Sales, some Regional Fed manufacturing surveys, the revised GDP estimate for Q2 and the latest Fed Biege Book. The Biege Book provides anecdotal information on economic conditions in each of the Fed Districts and will be closely read by Fed officials, especially given the wacky status of the federal data. Best Buy, Dell, HP and Deere will provide some of the more prominent earnings results. The Supreme Court’s decision on the tariff case could also come at any moment but it looks like most experts, of which I am not, expect the decision to come closer to year-end, at the earliest.
That’s wrap on this week. If you need a break from your loving family next week, you can watch Market Storylines on TV.NYSE.com or on the NYSE YouTube Channel. You can also listen every Friday on the Inside the ICE House Podcast feed. Thanks for joining me. I’m Eric Criscuolo. If I don’t see you before, have a Happy Thanksgiving.
