Thanksgiving week was one to be thankful for everyone, including investors, savers and consumers. Stocks went up. Interest rates were basically flat. Oil and gasoline prices fell, and folks shopped.
How heavily they shopped over the weekend won't really be known until early in the week when Visa (V) -) and Mastercard (MA) -) release data collected from stores over the weekend. But anecdotal reports suggest brisk but not feverish activity.
Retailers interviewed in the leadup to Thanksgiving have consistently noted that customers are being choosy at best and may be heading to discount outlets for gifts.
That can change in a hurry, however, the closer one gets to Christmas.
That said, for investors, the week ahead is setting up as a continuation of the rally that erupted in early November. And December, usually one of the year's top months, is still ahead after a mid-summer correction.
Stocks generally finished higher in the holiday-shortened Thanksgiving week. The S&P 500 (^IN) -) added 1% exactly to 4,959. The Dow Jones Industrial Average (^DJI) -) rose a more robust 1.2% to 35,390. The Nasdaq Composite Index (^COMPX) -) rose nearly 1% to 14,251.
Related: Are stocks telling us a pullback is ahead?
November has been a terrific month — easily the best month of the year and the best month since mid-2022.
The S&P 500 is up 8.7% for the month, with four trading days to go, and up nearly 19% on the year, a big rebound from the 2022 slump. The Nasdaq is up nearly 11% for the month and 36% for the year. The Dow is a laggard, up 7% for the month and nearly 7% on the year.
Investors struggled to get past a long list of worries, including:
- Higher interest rates.
- Inflation worries.
- Recession fears (resulting from points 1 and 2).
- Worries that wars between Ukraine and Russia and between Hamas and Israel could erupt into widespread violence.
But interest rates fell as the inflation news improved. The 10-year Treasury yield, which affects everything from mortgage rates to car-loans, is still at 4.47%, but it briefly topped 5% in mid-October.
All hail falling inflation
Inflation, as measured by the Consumer Price Index, surged above 8% a year in the summer of 2021. By October 2023, it was down to 3.2% on an annualized basis, and the Federal Reserve left its key interest rate unchanged at 5.25% to 5.5%.
A big reason for the inflation decline is that oil and fuel prices have fallen in recent months. Crude oil is down 16.8% so far this quarter and 6.2% in November alone. AAA's national average price of gasoline, at $3.259 a gallon on Saturday, is off 16% since peaking on Sept. 18.
Related: Gas prices are cheaper than last year and will likely keep falling
The CPI report on Nov. 14 was cheered lustily, and stocks have been moving solidly higher since.
The S&P 500 is up 3.35% since the day before the report was released. All 11 S&P 500 sectors are higher, led by real estate, materials (including steel and other metals), utilities, and financial stocks.
The S&P's tech sector is up just 2.9% in that time frame. Respectable enough but ho-hum compared with the sector's overall performance in 2024.
For the year, the info tech sector is up 50.4%, which should be no surprise in a group that includes Nvidia (NVDA) -), up 226%; Microsoft (MSFT) -), up 57%; Palo Alto Networks (PANW) -), up 90.7%; Advanced Micro Devices (AMD) -), up 88.8%; and Apple (AAPL) -), up 46.2%.
The challenge for December
In theory, December should just continue the momentum for the stock market. The pieces are mostly in the right places especially:
- The S&P 500's average December gain since 1999 is 5.1%. The Dow's average is 5.9%, and the Nasdaq's is 7.8%.
- The Federal Reserve has stopped raising rates and may start cutting in the spring.
- The U.S. economy is in better shape than most economists have expected.
- Energy prices globally seem to be moving lower, probably not quite at the pace anyone wants.
That said, there are a number of risks. Let's start with the obvious:
- Geopolitical tensions are high. Witness Hamas and Israel and Ukraine and Russia.
- U.S.-China tensions are severe enough that Nvidia shares dropped back when the company warned that getting U.S. permissions to sell its chips may take time and could hurt sales.
- Political tensions in the United States will get higher because it's a presidential election year. Inflation could reemerge.
- The Fed routinely says it won't hesitate to raise rates if it does.
The wild priciness in many stocks, especially big tech stocks, have in turn, painted a very incomplete picture of stocks overall.
Only three of the S&P 500's 11 sectors — information technology, consumer discretionary and communication services — are ahead more than 10% this year. And the trio are up big. They also include Microsoft, Nvidia, Google-parent Alphabet (GOOG) -), Facebook-parent Meta Platforms (META) -), Adobe (ADBE) -), Oracle (ORCL) -) Amazon.com (AMZN) -) and Netflix (NFLX) -).
In addition, the S&P 500 and the Nasdaq and Nasdaq-100 indexes are weighted by market capitalization. The bigger the overall market capitalization of a stock, the more it influences the index.
The 10 biggest S&P 500 stocks by market cap represent around 30% of the value of the index.
The Dow is price-weighted. The higher the price, the more influence a stock has.
If you weight each S&P 500 stock equally, the picture is radically different. The S&P Equal-weighted index is up just 3.7% this year.
So, watch out if the big stocks suddenly break. Or get ready to pounce on a bargain.
