Here is Schwab's early look at the markets for Friday, November 21st.
Investors await a fresh reading on consumer sentiment later as Wall Street licks its wounds from yesterday's ugly reversal that capsized tech stocks and the cryptocurrency market.
It's easy to blame yesterday's broken rally on receding chances of a Federal Reserve rate cut next month. But that was already built in before Thursday's early tech-fueled gains. Odds of a cut actually rose yesterday, according to the CME FedWatch Tool, to around 40% from 30%, while traders build in 70% chances of a cut by the end of January. Even if the Fed decides to wait until data are clearer, futures trading suggests rates are still on their way down and likely to be nearly 100 basis points lower by a year from now.
Despite that, the market remains firmly in risk-off mode, as Nvidia's solid results weren't enough to convince investors that AI exuberance can continue. Thursday's rally quickly ran into selling when major indexes briefly topped their 50-day moving averages, suggesting technical pressure remains an issue, Briefing.com noted.
The turnaround reinforced ideas that tech stocks, including Nvidia, have trouble finding follow-through buying on moves higher. And since Nvidia, Microsoft, Broadcom and other tech names swing so much weight by market capitalization, their struggles typically become struggles for Wall Street as a whole.
Fundamentally it's hard to poke holes in Nvidia's results or guidance, but investors may be coming around to the conclusion that Nvidia's fundamentals aren't the same as those of so-called hyper-scalers taking on debt to buy Nvidia's chips.
"Heading into Nvidia's earnings report, demand for Nvidia chips was not the problem," said Nathan Peterson, director of derivatives research and strategy, Schwab Center for Financial Research, or SCFR. "It was and is about over investment in AI infrastructure and debt issuance."
Cryptocurrencies also breached long-term support levels as traders fled from risk. Bitcoin futures fell below $87,000 by the end of Thursday, their first close below that level since mid-April. At this point, it's unclear if AI shakiness led to selling in crypto or vice-versa. Possibly some combination.
Lack of AI enthusiasm and a fluttering crypto market aren't the entire story. The S&P 500 Equal Weight Index, which weighs all components equally, was also down 1% by late Thursday. And the percentage of S&P stocks trading above their respective 50-day moving averages fell below 32% by late in the session, the lowest since late April. Most sectors shared in the weakness, though staples and real estate managed slight gains. Health care, financials, energy and materials—all sectors that managed gains earlier this month when tech fell—also finished in the red Thursday and are down over the last five sessions. This is evidence of broad-based bearish sentiment.
Speaking of sentiment, the University of Michigan's final November Consumer Sentiment data is due soon after the open. Consensus is for no change from the initial November reading of a lackluster 50.3, according to Briefing.com. However, that was well below consensus at the time and widespread across different population groups, so another drop wouldn't be out of the question.
Long-run inflation expectations dropped in the preliminary November sentiment report to 3.6% from 3.9%, and investors might want to see if that pulled through to the final reading.
Consumer caution surfaced in this week's earnings reports from Walmart, Target, Home Depot, and others. As one Walmart executive noted on CNBC, the company has seen many consumers from all income levels migrating toward its stores for perceived value, and saw sales temporarily slow during the government shutdown when food benefits were paused. More retailers report next week, including Best Buy, Dick's Sporting Goods, and Urban Outfitters.
The caution came despite a surprising climb of 119,000 jobs in September versus the expected 50,000. Beneath the headline, though, numbers were sweet and sour, with downward revisions to prior reports and a mild rise in unemployment to 4.4% from 4.3% in August. Short-term Treasury yields declined on the news.
The government subtracted 33,000 jobs from prior reports. Jobs growth in August turned negative, the second month of losses in the last four through September.
"Despite the move lower in Treasury yields, this report doesn't change our outlook for a December pause by the Fed," said Collin Martin, head of fixed income research and strategy, SCFR. "It suggests the labor market is cooling, but probably not enough to move the needle for the committee members that are worried about inflation."
Martin called the report a "mixed bag" overall. "The rise in the unemployment rate appears to be driven by an expansion of the labor force, however, so it's not necessarily as bad as the headline number suggests," he said.
The government won't release an October jobs report, and November data—which will also include whatever numbers the government can find from October--won't be available until December 16, after the Fed's meeting. That's probably the main thing limiting chances of a Fed move next month.
More data are on the way next week, but not the full slate. The government plans to release its September Producer Price Index, or PPI, next Tuesday.
Weekly jobless claims returned to their normal Thursday programming, coming in at 220,000. That's near this year's average weekly figure and likely didn't turn many heads. Continuing claims of 1.974 million were at a four-year high, suggesting jobs are hard to find.
Volatility surged again Thursday. The Cboe Volatility Index was up more than 11% by late in the session to above 26 after topping 28 earlier in the day and getting close to last month's peak of almost 29. VIX hasn't hit 30 since April 23, but the last two months have seen evidence of far more hedging activity, indicating caution ahead.
On another cautionary note, the dollar index rose slightly and remained above 100, briefly touching the high from earlier this month. The dollar has now eclipsed its 200-day moving average just above 100 for the first time since March, possibly a sign of investors seeking perceived safety and of falling rate cut hopes. Weakness in the yen plays a part, as well. The yen hit an 11-month low versus the dollar this week.
Major indexes sank across the board yesterday, with the Nasdaq Composite suffering another in what has been a series of sharp daily losses since October 10. The Nasdaq went through a huge swing yesterday to carve an "outside day" on the charts, meaning its high was above Wednesday's high and its low was below Wednesday's low. A negative turn like this in a single session looks quite ugly on the charts and could point to further selling. And much of it can be explained by the activity of one stock. Nvidia surged 5% to start the session before finishing 3% lower. Still, the Nasdaq managed to stay above its 100-day moving average.
That wasn't the case for the S&P 500 index, which closed below its 100-day moving average for the first time since May. That level, at 6,544, had represented support right near October's low of 6,552. The October low got taken out Thursday and the S&P 500 is now at two-month lows.
Checking individual stocks, Nvidia led the upward charge and the reversal, closing down 3%. CoreWeave, an Nvidia partner, followed Nvidia up and then down, closing with 7.6% losses.
Chip and crypto-related stocks were a sea of red by the end of Thursday. Financial stocks mostly fell, too, hurt by worries about a slipping economy. Those fears haunted many consumer names as well, like Disney, Untied Airlines, and Royal Caribbean.
Walmart climbed 6% after earnings and revenue topped analysts' consensus and the company ramped up its full-year forecast. In an interview with CNBC, a Walmart executive said the company is benefitting from consumers' search for value, and that this crosses various income levels.
The Dow Jones Industrial Average® ($DJI) fell 386.51 points Thursday (-0.84%) to 45,752.26; the S&P 500 index (SPX) came down 103.40 points (-1.56%) to 6,538.76, and the Nasdaq Composite® ($COMP) cratered 486.18 points (-2.16%) to 22,078.05.
