Trump trade takes a breather as the market focus turns to inflation fears

The adrenalin rush for US stocks came to a halt this week as the S&P 500 and the treasury market reacted to Powell’s cautious tone on the downward path of US interest rates. Market traders are now placing just over a 50% chance the Federal Reserve will cut rates again in  December. Combined with losses in corporate credit and commodities, the week rounded out a pan-asset retreat that, by one measure, was the worst in 13 months. Fears continue to grow that Trump 2 will rekindle inflation and the Fed, as a result, will be reigning in interest rate cuts.  THE US stock market had its worst week in 2 months. Stocks in Europe remain unloved. Bitcoin did hang onto most of its recent gains.  

This week, we will have earnings from Nvidia, which will most likely influence sentiment in the NASDAQ and the household retailer Walmart as earnings season draws to a close. According to FactSet, earnings this quarter have grown by 5.4% relative to the third quarter of 2023. Again, according to FactSet, 54 companies have provided negative guidance and only 26 positive.   Seven of the eleven sectors are reporting (or have reported) year-over-year growth, led by the Communication Services and Health Care sectors. On the other hand, four sectors are reporting (or have reported) a year-over-year decline in earnings, led by the Energy and Materials sectors. The S&P 500 index trades on 22X forward earnings and 28X historic.  

There was some positive US economic data on Friday as Retail sales came in slightly ahead of expectations. On the negative side, Industrial and Manufacturing production looked a little weaker. Manufacturing was blamed on the Boeing strikes and hurricanes.

Looking to the week ahead, the results of the monthly Flash Purchasing Managers will give us the latest signals of global economic trends, and the latest US consumer confidence data will be keenly watched. S&P Global, which compiles the data, will look for any indications that the Trump administration has led to a near-term impact through the pre-ordering and shipping of goods worldwide to front-run the imposition of potential tariffs, notably from mainland China. The data could show any signs of shipping congestion and the potential impact that any stretching of supply chains or spike in demand may have on prices, even if just through raised shipping costs. We all have seen the consequences to prices when supply chains become tight.

In the UK, we get the latest inflation data on Wednesday, which is forecast to report a rise back above the Bank of England’s 2% target rate. On Thursday, we get the latest retail sales data, which is expected to report a fall month over month. Then, on Thursday, we get Industrial Trends from the CBI. Stocks look like they will open this morning in a positive mood.