What Happened Last Week
Fresh All-Time High: S&P notches another ATH, supported by mega-caps.
Price Action: A weaker dollar drove international stocks outperformance.
Payrolls: Good, But Not Amazing: A small beat in payrolls pushed out expectations for a pause in Fed easing into 2025 and cemented market expectations of a 25 bps cut in December.
What We’re Watching This Week
U.S. Inflation: This week’s significant release is the U.S. consumer price inflation report, the last major update the Fed will get before next week’s policy meeting.
China Rally: Watching for follow-on buying in Chinese equities after the sharp rally in early Monday trading.
China Stimulus Specifics: A key Chinese economic policy implementation body could add “meat” (policy specifics) to the Politburo’s stimulus signaling “bones.”
Investment Management Team’s Views
- Last week, U.S. equities continued their ascendance, notching fresh all-time highs on the back of a rally in large-cap growth and mega-cap technology stocks. With tailwinds from a weaker dollar, the U.S. lagged international equities led by Europe. Friday’s marginally better-than-expected non-farm payrolls figure cemented what we think, in line with market expectations, will be a 25 basis points (bp) rate cut from the Fed next week (barring a major surprise from this Wednesday’s November CPI report).
- Chinese stocks are getting a meaningful boost in early U.S. trading from a significant overnight development; China’s Politburo has signaled a shift to a more supportive monetary and fiscal policy, prioritizing domestic consumption above all else. Although stimulus will likely excite investors in battered Chinese markets, we caution that there are still substantial policy risks. For example, likely in response to last week’s new U.S. chip export controls week, China has restricted the export of drones to Ukraine. United States policymakers could potentially interpret this as explicit support for Russia, for which they could respond with financial sanctions. Although this is hypothetical, the risk of tit-for-tat escalation is not. Chinese equity valuations remain depressed partly as a function of the latent risk.
- This week, we get November’s consumer inflation figures. The report is the last major data point the Fed will have to go off before next week’s policy meeting. Barring a major CPI surprise, we think the Fed will likely cut its policy rate by 25 bp next week. The Fed has entered its pre-meeting blackout period and will likely leak any significant deviation from what the market is currently pricing in to avoid a volatility-generating surprise decision. Turning to global events, we are closely monitoring China’s Central Economic Work Conference (CEWC) for follow-on specifics regarding the Politburo’s stimulus signaling.
