Weekly Investment Perspective

As the markets continued to process post-election information, they pulled back last week from the initial euphoria of knowing there was not going to be a lengthy period to finalize the election results. While the clarity of the succinct election result was well-received by markets, now investors are parsing through a flurry of headlines on potential cabinet selections from the incoming administration, with each alternative presenting distinct implications for policy across many industries. In other words, the path for policy remains a bit cloudy despite knowing the election result, and markets may remain volatile near-term as the cabinet candidate list is whittled down. The S&P 500 erased much of the gain from the previous week ending with a loss of -2.05% for the week, while the Dow Jones Industrial Average (DJIA) dropped -1.17%. The technology heavy NASDAQ dropped -3.13%.

Last week’s inflation reports did not help quell concerns of lingering price pressures. The Department of Labor reported consumer price inflation (CPI) came in at 2.6% year-over-year in October, 0.2% higher than September but in-line with expectations. Core CPI, which excludes more volatile food and energy categories, for October was up 3.3% year-over-year. Among the more notable line items, October saw used car and truck prices along with airline fares rise 2.7% and 3.2%, respectively, for the month continuing support of a strong economy. Meanwhile, the producer price index (PPI) has been consistently trending in the wrong direction this year. Core PPI, excluding food and energy prices, made its largest annual increase since June coming in at 3.1% year-over-year, well higher than last December’s low of 1.8%. Rising producer prices may further underpin stubborn consumer inflation as producer’s look to pass on input cost increases to protect profit margins.

Bond yields have moved higher in response to last week’s inflation readings alongside possible inflationary policies of the incoming administration with tariffs, immigration, and increased debt and deficits. The ten-year treasury yield is now approaching 4.5% for the first time since May The next CPI report comes out the week before the December Fed meeting. If inflation continues to increase, the Fed may elect to hold off on another rate cut until next year.

Consumer spending increased in October benefiting from higher wages and holiday sales starting early. Year-over-year US retail sales increased 4.13%. In October, sales were up in seven of nine retail categories on a yearly basis. For example, sporting goods, hobby, music and books stores were up and electronics and appliances saw a decline. Online and other non-store sales increased 19.38% year over year on an unadjusted basis.

This week, economic headlines will be a little quieter with housing starts expected to slow down a bit more, partially due to interest rates remaining higher. Unemployment insurance numbers come out Thursday and are expected to increase slightly in both initial and continuing claims. In addition, everyone will be watching as more details emerge on incoming administration details relating to personnel and policy. However, most of the market spotlight will be dominated by the earnings report for Nvidia that is due out on Wednesday, as the chipmaker has been the poster child for the AI investment boom that has provided a major lift to U.S. equities as a whole over the last two years.