U.S. equity markets rebounded higher last week and sit just below all-time highs as investors are feeling bullish heading into year end, evidenced by a seventh consecutive week of inflows into U.S. equities despite elevated valuations. Earnings reports from several major retailers gave a mixed read on the U.S. consumer last week but another strong earnings report from Nvidia bolstered the outlook for continued robust spending on building out AI data center infrastructure. For the week, the S&P 500 gained 1.7% while the Dow Jones and Nasdaq Composite gained 2.0% and 1.8%, respectively. The positive sentiment is extending into this week’s early trading following the news that Donald Trump has selected hedge-fund manager Scott Bessent as his Treasury Secretary following weeks of speculation and headline volatility around the critical cabinet position.

Scott Bessent is viewed as a market friendly pick who will be a steady hand at the Treasury Department. He has noted that his first priority as Treasury Secretary will be delivering on Trump’s tax cut pledges while also pushing for further deregulation. However, despite his support for tax cuts, Bessent has also been very vocal about the need to attack the growing national debt burden through rationalizing government spending. He has proposed what he calls a 3-3-3 policy that revolves around cutting the budget deficit to 3% of GDP by 2028 (from over 6% today), driving 3% GDP growth through deregulation, and producing an additional 3 million barrels of oil or its equivalent a day. In response, bond market yields are edging lower following a sharp back-up in rates over the last few months driven by concerns of an increasingly unsustainable fiscal path. Regarding international trade, Bessent has defended the economic case for Trump’s tariff policy and has recommended that they be implemented gradually, though he has also suggested that some of Trump’s more extreme tariff threats are a negotiating strategy aimed at gaining concessions from trading partners.

On the corporate earnings front, there was a stark contrast last week from major retailers. Several prominent retailers like Target and Lowe’s flagged continued affordability challenges for consumers from inflation and interest rates that are stretching discretionary budgets and causing some consumers to trade down and focus on the essentials. Meanwhile, discount retailers like Walmart and TJ Maxx posted strong results as they are gaining wallet share from price sensitive consumers. The ever-important holiday selling season is expected to be a bit muted this year with more retailers relying on bigger promotional incentives over longer periods to boost sales. On their earnings calls, both Lowe’s and Walmart management teams noted concern with tariffs that could raise their cost of goods sold and would ultimately further increase prices for consumers as those costs get passed on. Meanwhile, despite Nvidia reporting another strong quarterly earnings beat and raise to forward guidance amid the rollout of its highly anticipated next generation AI data center system called Blackwell, the stock has been under pressure since it reported last Wednesday as the high bar of investor expectations becomes increasingly hard to clear at such immense scale.

Looking ahead, despite a holiday-shortened trading week due to Thanksgiving on Thursday, the economic calendar remains full headlined by the release of the October PCE index (Personal Consumption Expenditures), which is the Fed’s preferred inflation gauge. Economists forecast that core PCE inflation rose to 2.8% year-over-year in October from 2.7% in September, still well above the Fed’s 2% target, and recent wage growth data suggests inflation may remain stuck above target near-term.