Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets. We are recording on Thursday afternoon after an exciting morning here on the New York Stock Exchange trading floor, where we hosted President-Elect Trump, Vice President-Elect Vance, members of the Cabinet, along with some CEOs from our NYSE community. It was a historic and amazing event to be part of where you could feel the optimism associated with the incoming administration.
Now this week we've seen equity markets consolidating recent gains with some new wrinkles to the recent rotation, and it has been a very busy week of economic data since I was with you last week, which is shaping the conversation about monetary policy heading into next week's Fed meeting. So with that, let's get to this week's Market Storylines.
Now let's start with the economic data. Last Friday's employment report painted a mixed picture. Headline nonfarm payrolls rebounded 227,000 after a weak October report, which was impacted by storms and strikes. However, the household survey showed a decline of 355,000 jobs and the labor participation rate fell, which pushed up the unemployment rate to 4.2% from 4.1%. Now, this adds to some of the mixed signals that we've been seeing in economic data recently, and it's hard to parse out the impact of some extraneous events impacting it. Given the sloppiness of the hard data, we can try to use some survey data and other leading indicators to help paint the mosaic. This week, the NFIB Small Business Optimism Index jumped to 101.7, breaking above the 50-year average of 98 for the first time in nearly three years, while the Conference Board's Employment Trends Index improved for consecutive months for the first time this year, which suggests that there could be a pickup in activity as we head into 2025.
Now, moving on to inflation, this week's data has also been mixed. Wednesday's CPI report was in line with expectations of 0.3% month-over-month and 2.7% year-over-year, both of which were up about a 10th from the previous month, driven by a jump in food inflation. Now, core CPI was also in line of 0.3 and 3.3% respectively. Now, the silver lining within that report was that the jump in car prices after the hurricanes may reverse. Additionally, owners' equivalent rent within the shelter component fell to 0.2%, the smallest increase since 2021. Now, this morning's PPI report came in above expectations, also pointing to an increase in food prices. Now, despite the hotter data, there has been a muted response within Treasury markets due in part to the fact that this morning's initial claims jumped to 245,000, hitting its highest level since October and the late summer, though seasonally, we've seen similar increases associated with the holidays in the past.
Now, all in all, weakness in some of the underlying labor market data will allow the Fed to cut rates next week, but the inflation data suggests that at best, the disinflationary process has stalled out, which will make the Fed cautious going forward. The most likely outcome next week is a hawkish rate cut where officials remove the prospect of future cuts next year within the summary of economic projections. And Chair Powell more clearly says that the pace of rate cuts will slow going forward, putting the possibility of a pause in Q1 more squarely on the table. Now, markets have been adjusting for this possibility over the last month.
Now outside of the economic data there has also been quite a few central bank rate decisions this week, including a couple of surprises. Yesterday, the Bank of Canada cut rates by 50 basis points, as did the Swiss National Bank overnight, which was a surprise, and this morning the ECB cut rates by 25 basis points in line with expectations, though there have been press reports suggesting that a 50 basis point cut was discussed. Now there were some dovish changes to the statement, which does point to further easing.
Now, meanwhile, in Brazil, the central bank hiked by a hundred basis points and singled more to come to try and stem currency weakness and inflation. So over the last two years, we've experienced one of the most aggressive globally coordinated tightening cycles in history. However, we are now seeing central banks being forced to deal with very different situations within their local economies. Now next week, in addition to the Federal Reserve, there are rate decisions from Japan and the Bank of England, amongst others.
Now, the other story this week has been China, ahead of China's Central Economic Work Conference, which concluded last night. Now, the Politburo signaled a shift in monetary policy to moderately loose from prudent and signaled additional policy support over the weekend. Now, this increased expectations heading into the conference, which concluded with a pledge to run larger fiscal deficits, loosen monetary policy, while boosting domestic demand. But there has been some disappointment with the lack of details, which is causing some of the recent commodity strength to unwind.
Now, last week we highlighted that megacap tech reestablished its leadership in a big way with the NYSE FANG+ definitively breaking to a new all-time high, ending the week up 6%, while other areas of the market which had outperformed post-election pulled back around 1%. Now this week, we're seeing very similar activity despite a sigh of relief after CPI. However, there has been a new wrinkle to some of the rotation. Some of the high-flyer momentum trades have come off the boil, and we've started to see some mean reversion trades beneath the surface. This was most evident on Monday when the top 10% of the year-to-date performers within the S&P 500 were down an average of 2.2%, while the bottom 10% were up 1.6%.
This is common to see as we approach the end of the year and into the new year as investors rebalance portfolios and look for opportunities, but with the amount of dispersion we've seen within the market this year, those moves can be violent. That being said, the overall pullback has been very orderly with equities consolidating the recent gains and hovering right around all time highs.
Now, quickly looking ahead to next week, it is the last full trading week of 2024. Central banks will remain in focus, highlighted by the Fed's rate decision on Wednesday. Next week, the economic data includes retail sales and the S&P Global's Flash PMIs, which will give us our first look at some of the December data and PCE, the Fed's preferred gauge of inflation, will be released on Friday. Now Friday will also be the last big liquidity event of the year as it is triple witch expiration and the S&P quarterly index rebalances. The closing auctions associated with this event have consistently been setting new records, with Q3's September closing auction the largest in history with nearly 3.1 billion shares trading.
Well, that's going to do it for this week. Once again, thank you for spending some time with us today. Remember, you can watch Market Storylines on tv.nyc.com, or our YouTube channel, or you can listen every Friday on Inside the ICE House podcast feed. Thanks for joining me. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen and follow us on X, @ICEHousePodcast. From the New York Stock Exchange, we'll talk to you again next week, Inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.