(Bloomberg) — A rally that drove stocks to a series of all-time highs showed signs of exhaustion, with investors awaiting this week’s key jobs data and Jerome Powell’s remarks for clues on whether the Federal Reserve will cut rates in December. Bonds and the dollar barely budged.
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Wall Street also took some risk off the table after South Korean President Yoon Suk Yeol declared martial law and lawmakers voted to request lifting the shock measure, with the nation’s assets suffering intense volatility. US equities struggled to make headway, following an $11 trillion surge that sent S&P 500 to its 54th record this year. Some traders noted that the relentless advance drove sentiment gauges toward extremes, with the benchmark hovering near overbought levels.
Positioning in S&P 500 futures is “completely one-sided,” according to Citigroup Inc.’s Chris Montagu.
“Things are getting extremely crowded on one side of the boat — the bullish side,” said Matt Maley at Miller Tabak + Co. “Valuation levels are a lousy timing tool. However, sentiment and positioning are better tools. So it’s not out of the question that today’s extreme readings on these issues could create a surprising pick up in volatility before year-end.”
Just a few days ahead of the all-important US payrolls report, data showed job openings picked up in October while layoffs eased, suggesting demand for workers is stabilizing. That’s important for Fed officials who are trying to avoid any further weakening in the labor market as they gradually lower interest rates.
The S&P 500 fell 0.1%. The Nasdaq 100 fluctuated. The Dow Jones Industrial Average slid 0.2%. Salesforce Inc. is due to report results after the close. Germany’s DAX topped 20,000 for the first time.
Treasury 10-year yields rose two basis points to 4.21%. South Korean assets regained some lost ground as authorities vowed to provide “unlimited liquidity” to markets. Oil rose as the US imposed more sanctions targeting Iranian crude and OPEC+ made progress on a deal to keep output off the market.
Bank of America Corp. clients continued to pile into US equities last week as post-election enthusiasm persisted, with purchases made by hedge funds and retail investors.
Net inflows by bank’s clients totaled $800 million in a holiday-shortened week ended Nov. 29, quantitative strategists led by Jill Carey Hall said Tuesday.
Equities will likely be exposed to risks such as tariff- and geopolitics-driven inflation, growth fears and a fizzling AI trade in 2025, according to HSBC strategists, who retained their expectations of a first-half rally.
The team led by Max Kettner says a more hawkish-than-expected Fed would also be a downside risk. On the other hand, deregulation, a strong rebound in China and synchronized pick up in global goods could support further gains in risk assets, they added.
History suggests a Fed easing cycle could offer resolute support for stocks, and clearly more if it’s accompanied by steady economic conditions, according to Nathaniel T. Welnhofer at Bloomberg Intelligence.
Since 1971, the S&P 500 posted an annualized return of 14.9%, and since the late 1970s, the Russell 2000 gained 17.2% in periods when the central bank cut rates, he said.
The results were much stronger during rate-cutting cycles in non-recessionary periods: Large caps averaged a 25.2% annualized return vs. 11% in recessionary periods, while small caps averaged 19.6% and 16.5%, respectively.
“If the Fed stops easing early, the pace of gains for stocks will likely depend more on the state of the economy,” Welnhofer added. The S&P 500 has posted a 0% return on average in the three months just after the end of easing cycles, but is down 9.9% when the economy was in recession, compared with 3.3% when it wasn’t.
“The US economy continues to hum along, the Fed is on its path to lower interest rates, and earnings growth remains strong,” said Bret Kenwell at eToro.
Kenwell notes that’s a scenario that could continue favoring the small-cap space — with the Russell 2000 being the top-performing major index since the US presidential election.
The gauge gained more than 10% in November alone — the second time it has done so this year after accomplishing the feat in July. Going back to 1979, when the Russell 2000 posted a monthly gain of that magnitude, it was higher 90% of the time six months later with an average gain of 11.4%.
“While the statistics are favorable for small caps moving forward, so are the fundamentals,” he said. “Even the recent spike in 10-year Treasury yields has done little to deter small-cap investors.”
Meantime, a New York University professor known for his expertise on valuations says the “Magnificent Seven” megacaps are a buy during corrections as most of them will keep generating money.
“As a value investor, I have never seen cash machines as lucrative as these companies are,” Aswath Damodaran, a finance professor at NYU’s Stern School of Business, said in a Bloomberg Television interview. “And I don’t see the cash machine slowing down.”
There will be corrections and “I’d suggest that when that happens you find a way to add at least one, maybe two or three of these companies, because these are so much part of what drives the economy and the market,” he added.
Corporate Highlights:
AT&T Inc. predicted sustained profit growth over the next three years, including double-digit gains in 2027, a payoff from its investments in mobile-phone and fiber-optic networks.
BlackRock Inc. agreed to buy HPS Investment Partners in an all-stock deal valued at roughly $12 billion, a purchase that will propel the world’s largest asset manager into the highest ranks of private credit.
SpaceX is in talks to sell insider shares in a transaction valuing the rocket and satellite maker at about $350 billion, according to people familiar with the matter.
Bank of Nova Scotia missed earnings estimates on higher-than-expected expenses and taxes.
Honeywell International Inc. and Bombardier Inc. reached a deal on the development of aviation technology and settled a long-running legal dispute.
MARA Holdings Inc. bought the North Texas wind farm in Hansford County from a joint venture between National Grid Plc and the Washington State Investment Board,
Zscaler Inc., a security software company, gave a forecast for adjusted second-quarter earnings that missed expectations.
Children’s Place Inc. posted profit that missed the average analyst estimate.
Key events this week:
S&P Global Eurozone Services PMI, PPI, Wednesday
US factory orders, US durable goods, Wednesday
Fed’s Jerome Powell and Alberto Musalem speak, Wednesday
Fed’s Beige Book, Wednesday
Eurozone retail sales, Thursday
US initial jobless claims, Thursday
Eurozone GDP, Friday
US jobs report, consumer sentiment, Friday
Some of the main moves in markets:
Stocks
The S&P 500 fell 0.1% as of 12:17 p.m. New York time
The Nasdaq 100 was little changed
The Dow Jones Industrial Average fell 0.2%
The MSCI World Index rose 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.2% to $1.0520
The British pound rose 0.1% to $1.2672
The Japanese yen rose 0.2% to 149.30 per dollar
Cryptocurrencies
Bitcoin fell 0.1% to $95,292.98
Ether fell 1.7% to $3,556.29
Bonds
The yield on 10-year Treasuries advanced two basis points to 4.21%
Germany’s 10-year yield advanced two basis points to 2.05%
Britain’s 10-year yield advanced three basis points to 4.24%
Commodities
West Texas Intermediate crude rose 2.9% to $70.09 a barrel
Spot gold rose 0.2% to $2,645.71 an ounce
This story was produced with the assistance of Bloomberg Automation.
