What We're Talking About This Week!

• Weekly Market Reset

• Key Economic Reports This Week

• Dividend Landscape

• Market Outlook

Weekly Market Reset

The markets made a shift last week that looked a whole lot like years past - domination by tech and growth with everything else struggling to keep up. The sharp reversal in cyclicals suggests that the Trump trade may have run out of gas, at least for now. I think the long-term trends of deregulation, tax cuts and easing monetary conditions will act as a tailwind for equities throughout 2025, but the market has run pretty hard since the election and a pause in the rally of previous winners was probably due.

The warning sign for me is the drop in long-term Treasury yields. They’ve been dropping for several weeks now, which kind of flies in the face of what we’ve been hearing about inflation worries. We’re seeing similar behavior from TIPS, which are also underperforming Treasuries. We could be seeing sentiment shifting away from concerns about inflation to the state of the global landscape. While the U.S. economy is still in good shape, we’ve seen plenty of geopolitical turmoil in Europe (the French prime minister), Asia (the South Korean martial law declaration) and the Middle East (the fall of Al Assad in Syria), so this could be some flight to defense happening beyond the equity markets.

The rebound in the November jobs number shows that the weak October number may have been an anomaly. The result of the Boeing strike and multiple weather related incidents wouldn’t have necessarily pushed October’s reading into “strong” territory, but November proved that the U.S. labor market is still in a healthy place and we’re not in immediate danger of a significant slowdown. The uptick in the unemployment rate isn’t cause for concern yet.

Key Economic Reports This Week

U.S. inflation will be in focus this week and this week’s numbers are unlikely to calm fears that it’s re-accelerating. Expectations are that the headline rate will move back up to its highest level in four months and another 0.3% uptick in the core rate will demonstrate that price growth still isn’t making progress towards the Fed’s 2% target. While the market is pricing in another Fed rate cut later this month, further easing beyond that is still very much up in the air. At this point, we’re likely to see a couple more cuts, but it’s going to be tough justifying anything more if core inflation is still running at 3-4% annually.

We’re about to run head first into the pre-Christmas central bank meeting season. The Australian central bank is expected to hold citing elevated inflation risk, but the ECB and Bank of Canada will almost certainly make cuts. Next week, we’ll get a likely cut from the Fed, but the real action could come from Japan. It could be a coin toss at this point whether or not the BoJ will hike or wait until 2025. The latest data would support the case for a December hike, but government officials seem hesitant to do anything but provide as much support for a stagnant economy as possible. The market seems to think that a hike is off the table, so that could be a volatility catalyst if the BoJ decides to move.

Dividend Landscape

Dividend stocks didn’t get much support from anywhere in the market last week. Defensive sectors had been showing some signs of life, but immediately reversed again. Cyclical leadership had been keeping some dividend strategies alive, but that faded in a big way last week. I don’t think the opportunity for dividend stocks has faded. The market got all the supportive data it could have wanted last week and that certainly brought the bulls to life. Going forward into the remainder of 2024, however, I think there are still places where the narrative could get fouled up, in particular with the Bank of Japan decision. Seasonality should play a supportive role and that could end up carrying stocks to further gains this month, but I think it’s far from a done deal.

Market Outlook

I think overall conditions probably still favor equities at this point. Bitcoin crossed the $100,000 mark last week and has been holding on to that level suggesting that the market bulls are still in control. The U.S. inflation report this week could cause some volatility if it comes in higher than expected again. I don’t think we’ll see that though and absent any other obvious downside catalysts, I think equities still have a path forward.

I think Treasury yields are still very much worth watching. If they keep trending lower, it could be a sign that bullish sentiment is starting to break down under the surface.

Looking better for: bitcoin, consumer discretionary, senior loans

Looking worse for: small-caps, value, consumer staples