The S&P 500 and Nasdaq Composite reached new record highs on Friday, supported by slightly stronger-than-expected November jobs data that likely won’t deter the Federal Reserve from cutting rates later this month. The S&P 500 gained 0.25% to finish at 6,090.27, while the Nasdaq advanced 0.81% to 19,859.77, driven by strong performances from Tesla, Meta Platforms, and Amazon. Both indexes hit all-time highs during the session and closed at new peaks. Meanwhile, the Dow Jones Industrial Average lost 123.19 points, or 0.28%, ending the day at 44,642.52. For the week, the S&P 500 and Nasdaq posted their third consecutive weekly gains, rising 0.96% and 3.34%, respectively. The Dow, however, edged down 0.6% over the same period. Friday’s jobs report showed nonfarm payrolls increasing by 227,000 in November, surpassing the Dow Jones forecast of 214,000 and reflecting a sharp rebound from October’s upwardly revised gain of 36,000. The unemployment rate ticked up to 4.2%, in line with expectations. Much of the focus this week will be on incoming inflation data, with the November Consumer Price Index (CPI) and Producer Price Index (PPI) set to be released on Wednesday and Thursday, respectively. JPMorgan strategists anticipate the CPI to show a 0.3% increase in the core index. They note that it would take a significant surprise in the data to alter their expectations for the Federal Reserve’s policy trajectory. “With the blackout period beginning this weekend, we doubt Fed officials will want to go into the December meeting with the same amount of drama as preceded the September meeting,” strategists led by Michael Feroli said in a note. On the producer price front, the strategists estimate a 0.2% rise in the final demand producer price index (PPI) for November, consistent with October’s pace. Energy prices are expected to edge up by 0.3% following three consecutive months of declines, while food prices are projected to firm slightly with a 0.2% increase, reversing October’s 0.2% dip. Excluding food and energy, they forecast core PPI to rise by 0.2%, aligning with its trend in recent months. However, they foresee a modest slowdown in core goods PPI growth, projecting a 0.1% increase for November compared to the stronger 0.3% gain in October. Separately, Citi strategists said a softer core CPI this week “should also shift Fed and market attention away from sticky inflation and towards softening jobs.” The Wall Street firm expects a 25 basis point (bp) cut from the Fed at its meeting next week, and for cuts to continue at upcoming meetings to a terminal rate of 3.00-3.25%.
Another important earnings week: Broadcom, Adobe to report
This week also brings several important updates on the earnings front. Investors and analysts will get a chance to dive into new financial results from Adobe, Broadcom Inc, Toll Brothers, and Oracle, among others. Broadcom, a key AI player, has delivered impressive performance this year, with a 60% stock gain year-to-date. The outperformance has been driven by strong growth fueled by its AI compute and networking businesses. Moreover, VMware, acquired by Broadcom over a year ago, appears on track to achieve its $4 billion quarterly revenue run rate and $12 billion annual target.
What analysts are saying about US stocks
Oppenheimer: “We are initiating our price target for the S&P 500 for 2025 at 7100 by year-end. This is 16.7% above last Friday’s close and implies a 25.8x multiple over our earnings forecast of $275.” “In the equity markets companies in all eleven sectors could benefit from improved productivity via AI to further serve the needs of business and customers.”
Citi: “We maintain a positive view on US equities headed into 2025. A base case 6500 S&P 500 target allows for mid-single digit gains on the heels of back- to-back 20%+ years. Ongoing soft landing and Artificial Intelligence tailwinds now interact with Trump policy promises, and risks. Continued broadening beyond Mega Cap Growth impacts is critical but an extended valuation starting point will be an ongoing hurdle. Our bull and bear case assumptions help frame an expectation for increased volatility next year.”
BCA Research: “The labor market is in the midst of an unusual limbo in which job creation (hiring) and destruction (layoffs) are both muted. We expect that continued softening will eventually provoke a wave of layoffs, triggering a vicious circle in which shrinking payrolls beget slower spending, begetting further payroll contraction and still slower spending growth until businesses slash discretionary investment and a recession ensues. While we expect the recession will be mild and brief, we nonetheless expect the S&P 500 will suffer a bear market.”
UBS: “With risks either not materializing or investors not paying much attention to them as the holidays approach, the path of least resistance is for the markets to keep rallying. In-line inflation data this week and the Fed cutting 25bps next week don’t guarantee this as these outcomes should be largely priced in. But absent negative news flow, upward momentum tends to be self-reinforcing, supported by investors chasing the rally. The trade-off is that it sets up the markets for a correction in 1Q should the data or policy fall short of expectations.”
Evercore ISI: “While S&P 500 TTM P/E at 25x is lofty, exuberance has not become irrational, nor have asset prices gone “too far” as to put the end of the Bull Market in sight. Valuations are not extreme “enough” with the Fed cutting and the Economy still strong, unlike the Dot.Com and Housing bubbles. The sentiment is optimistic but not yet universally so. And the market cap of speculation hotspots Crypto + TSLA at less than $5T are not meaningful enough in proportion to cause a broad dislocation on a pullback.”