Market Overview

The stock market experienced some consolidation activity following last week's surge. The S&P 500 reached a record high on Monday, closing above 6,000 for the first time, but ended the week 2.1% lower. Despite this, the index remains 1.5% higher since the election results. The selling pressure was broad-based, affecting chipmakers and mega caps. The equal-weighted S&P 500 closed 1.7% lower than the previous Friday.

Only two sectors of the S&P 500 closed higher this week, while eight sectors logged losses ranging from 1.1% to 5.5%. The energy sector (+0.6%) and financial sector (+1.4%) were the only sectors in positive territory. The health care sector (-5.5%) suffered the largest loss, followed by the information technology sector (-3.2%). Health care stocks faced challenges, especially after President-elect Trump nominated Robert F. Kennedy, Jr., a vaccine skeptic, to lead the Department of Health and Human Services.

Chipmakers also struggled, particularly after Applied Materials (AMAT) released fiscal Q1 guidance that did not meet market expectations.

Interest Rates and Economic Data

This week's negative market bias was less extreme compared to the previous week's surge. Concerns over interest rates and speculation that the Federal Reserve may be more cautious with rate cuts contributed to the market's performance. The 10-year yield settled at 4.43%, 12 basis points higher than the previous Friday, while the 2-year yield settled five basis points higher at 4.30%.

Remarks by Fed Chair Powell emphasized that the economy is not signaling an urgent need to lower rates. Data supported Powell's comments, with total CPI up 2.6% year-over-year and core CPI unchanged at 3.3%. Total PPI increased to 2.4% year-over-year, with the index for final demand, excluding food and energy, rising to 3.1% year-over-year. Weekly jobless claims remained low, indicating a strong labor market that may lead to increased consumer spending and inflationary pressure. Retail sales were strong in October, bolstered by upward revisions in September data.

Weekly Market Performance

Monday

The S&P 500 closed above 6,000 for the first time, increasing by 0.1% from Friday's record close. The Nasdaq Composite rose by 0.1%, the Dow Jones Industrial Average gained 0.7%, and the Russell 2000 outperformed with a 1.4% increase. Small-cap stocks benefited from optimism about the economy and equity market under the new administration and Congress. There was no U.S. economic data released on Monday.

Tuesday

The stock market paused after a solid run since the election results. Losses were muted compared to gains since last Tuesday's close. The consumer discretionary sector (-1.1%) was among the worst performers, impacted by losses in Tesla (TSLA, Financial) and Home Depot (HD, Financial). Gains in some mega-cap stocks provided support to the broader market. The NFIB Small Business Optimism survey rose to 93.7 in October from 91.5 in September.

Wednesday

The market showed mixed results, with the S&P 500 settling little changed from Tuesday. Participants digested the October Consumer Price Index release, which showed total CPI up 2.6% year-over-year. The Treasury Budget for October showed a deficit of $257.4 billion, with net interest outlay running close to $1 trillion on an annualized basis.

Thursday

Major indices closed with losses due to profit-taking after a strong post-election run. The October Producer Price Index indicated rising inflation at the wholesale level, while weekly jobless claims remained low. Fed Chair Powell reiterated that the economy is not signaling an urgent need for rate cuts.

Friday

The stock market closed with significant losses. Concerns over interest rates and the Fed's cautious stance on rate cuts contributed to the decline. Large-cap technology stocks, especially semiconductor-related names, experienced outsized declines. The New York Fed Empire State Manufacturing Survey for November showed a strong reading of 31.2, indicating expansion. Retail sales increased by 0.4% month-over-month in October.

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Today's News

Bitcoin (BTC-USD) has reached a historic peak, climbing to an all-time high above $93K, with its market cap soaring to $1.8 trillion. The cryptocurrency sector collectively achieved a market cap of $2.9 trillion, surpassing its previous 2021 peak. Bitcoin now commands 62% of the total crypto market, a significant increase from its 42% share in November 2021. Ethereum (ETH-USD), however, has not yet returned to its 2021 levels, holding about 14% of the market. This surge comes as investors anticipate a crypto-friendly approach from the incoming Trump administration.

Pharmaceutical and biotech stocks faced a downturn following the announcement of Robert F. Kennedy Jr. as the nominee for Secretary of Health and Human Services. Kennedy Jr.'s skepticism towards vaccines and his plans to reform the FDA have created apprehension among investors. Notably, Pfizer (PFE, Financial) shares fell 4%, while AstraZeneca (AZN, Financial) and GSK (GSK, Financial) experienced declines of 3% and 2%, respectively. Smaller vaccine producers like Bavarian Nordic (BVNRY) and BioNTech (BNTX) also saw significant drops.

In the tech sector, short interest in Super Micro Computer (SMCI, Financial) remains high, with the company leading as the most shorted stock in its sector at 16.99%. Enphase Energy (ENPH, Financial) and Akamai Technologies (AKAM) follow, with short interests of 12.17% and 6.13%, respectively. Despite these pressures, the S&P 500's information technology sector has climbed nearly 22% year-to-date.

Juniper Networks (JNPR, Financial) saw a 5% decline amid reports of the Department of Justice reviewing its proposed $14 billion sale to Hewlett Packard Enterprise (HPE). Speculation about the DOJ's decision has intensified, with some traders noting the presence of an HPE corporate jet in Washington, D.C., potentially indicating discussions about the deal.

David Tepper (Trades, Portfolio)'s Appaloosa hedge fund made significant changes in the third quarter, selling off stakes in Boeing (BA, Financial) and UPS (UPS, Financial) while acquiring shares in casino operators like Las Vegas Sands (LVS, Financial) and Wynn Resorts (WYNN). The fund also increased its holdings in energy companies Vistra (VST) and NRG Energy (NRG).

SolarEdge Technologies (SEDG) and Maxeon Solar Technologies (MAXN) experienced significant declines of 16.1% and 12.7%, respectively, after Morgan Stanley downgraded both stocks. The downgrade cited uncertainties surrounding the Inflation Reduction Act and other regulatory factors as key pressures on the clean energy sector.

Bloom Energy (BE) surged 46.6% following a landmark agreement with American Electric Power (AEP) for up to 1 GW of solid oxide fuel cells. This deal, the largest of its kind, marks a significant step in addressing energy demands for data centers and other large users.

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