What Happened Last Week
Equity Reprieve: U.S. large-cap gains paused last week despite a rally across the mega-cap growth complex led by AVGO.
U.S. Inflation: CPI release did not surprise against consensus estimates.
Bond Market: The Treasury yield curve steepened as the 10-year gained more than 20 bps.
What We’re Watching This Week
Fed: We expect a 25 bp cut this week and a pause in January, with the risk of hawkish rate projections for next year.
Economic data: Highlights include PMIs, U.S. retail sales, and the Fed’s preferred inflation gauge.
Other Central Banks: 15 central banks report this week; the global divergence in economies and monetary policy should provide a supportive backdrop for our active macro process going into 2025.
Investment Management Team’s Views
- The equity rally took a breather last week as the S&P 500 fell by 0.6% in choppy trading, likely made worse by the looming illiquid holiday period. Last week’s price action was incredibly narrow – the mega-caps and growth stocks led global equities as strong earnings from Broadcom (AVGO) outweighed the 5.7% slide in Nvidia (NVDA). Meanwhile, value, small-caps, and other cyclicals, all believed by the market to be beneficiaries of the incoming administration, fell on the week. Small-caps in particular may have a potentially interesting set-up into next year, as they have given up their outperformance relative to the S&P 500 realized in the weeks following the election. Overseas, emerging markets posted modest gains as developed markets fell. Investors continue to handicap the incoming information around the stimulus plans of the Chinese Communist Party and political turmoil in France and Germany.
- The CPI report in the U.S. was the highlight on the data front, and despite the as-expected print, bond markets repriced yields higher and the curve steepened. This may have been driven by the action from overseas central banks and repositioning into this week’s Fed meeting, as well as the ongoing attempt to discern Trump’s policy priorities once taking office. We expect the Fed to cut by 25 bp this week, in line with market expectations. Rates traders will be watching their estimate of the long-term neutral rate and how many cuts they pencil in for 2025, as well as parsing the press conference for clues on future policy.
- This week is the last full one of the year before we enter the holiday season in earnest. In addition to the Federal Reserve, 15 other central banks are set to release their policy decisions, including the Bank of Japan and the Bank of England. Outside of monetary policy, we get key insights into the U.S. consumer via retail sales and a look into global manufacturing and services sentiment through purchasing manager indices (PMIs).
