Published December 13, 2024
After a euphoric leap in the stock market once the election results came in, stocks have presented a somewhat confused pattern. The day after the election, small cap stocks ripped higher by +6%, a massive one-day leap. The beginning of a long-awaited catch-up trade for small cap stocks? Not so fast. Since then, the group has gone down, then back up, and back down every day in December. The net effect being to hold that post-election jump but make no progress since, basically leaving the sector unchanged over a two-month period.
From a fundamental standpoint, is the slide in the Industrial sector reflecting some sort of concern about a coming slowdown in growth? Too soon to know.
Compare the move above to the action in Consumer Discretionary stocks below. Consumer Discretionary stocks posted a relatively modest move after the election. But they have kept going, building up a powerful +15% in five weeks’ time.
However, the large move in Consumer Discretionary is misleading. The sector ETF has two stocks – Amazon and Tesla – accounting for almost half of its weight. Tesla founder Elon Musk’s close relationship with President-elect Trump has clearly been the driving force behind a +70% move in the car company’s stock since the election. +70%!!! That is over a five-week period with little new company news, certainly nothing that would justify such a vaulting in outlook – simply a bet by investors that the Musk-Trump relationship will bring future benefit to the electric car maker. Remove the Tesla effect and Consumer Discretionary stocks have had only a very modest rally.
Bottom line: If we step back from the market noise, we see that since the election interest rates are unchanged while stocks have largely held the post-election jump. Is this simply digestion of the post-election jump, to be followed at some point by a resumption of the rally? That is what we would expect from a technical perspective. Last week’s positive move upward in the Nasdaq leaders perhaps supports that expectation.
Market Update
Stocks fell back -0.6% Monday after China announced an antitrust investigation against chipmaker Nvidia. Meanwhile Chinese stocks leapt after the country announced an easing of monetary policy. A -0.3% dip Tuesday with software company Oracle underwhelming investors with their earnings report. Offsetting the -7% drop in Oracle was a +6% pop in shares of Google after the company announced a powerful quantum computing chip. The Google rally continued Wednesday leading the Nasdaq to a strong +1.8% rally. The Mag 7 stocks all showed strength as the latest inflation report came in as expected. That report solidified market expectations of a coming interest rate cut at this month’s Federal Reserve meeting. Money has rotated back into Mag 7 stocks in recent days. Thursday saw a -0.5% slip in stocks as wholesale price data came in a bit hotter than expected, a report on jobless benefits suggested an uptick in unemployment, and software company Adobe offered a weak outlook. A very optimistic earnings report from AI chip maker Broadcom failed to spark a broader market rally Friday. Stocks fell throughout the session to a -0.3% slip. It was the 10th straight day of losses for the value stock index, a losing streak of record duration. Hampering stocks was a further rise in interest rates after mild but sticky inflation reports earlier in the week.
For the week, the S&P 500 slipped back -0.59% while the Nasdaq rose +0.77% as the index’s leaders showed strength. Small cap stocks fell back -2.45% reflecting the weakness across much of the market.
Warm wishes and until next week.