Stocks pop as inflation drops

Sometimes one day is all it takes.

The S&P 500 (SPX) didn’t do much last week besides rally on Tuesday after the latest Consumer Price Index (CPI) report. But that also happened to be the SPX’s third-biggest up day of the year, which was all it took for the index to log its third-straight up week, and its second-biggest weekly gain since September 1:

The headline: Stocks get (dis)inflation bump.

The fine print: After the CPI and Producer Price Index (PPI) showed inflation dropping significantly, weekly jobless claims came in higher than expected. Translation: A cooling economy has eased concerns about another Fed rate hike and ramped up expectations for rate cuts. Two questions: Will stock bulls respond to similar data in the future as enthusiastically as they did last Tuesday, and will a slowing economy eventually transition from market tailwind to headwind? (Check out what a special roundtable of Morgan Stanley & Co. strategists had to say about inflation and the 2024 macroeconomic outlook.)

The moves: The 10-year T-note yield fell to a two-month low of 4.44% last week, while crude oil slid into a bear market, falling more than 20% below its September high and trading below $73 for the first time since July.

The scorecard: The small cap Russell 2000 (RUT) followed its biggest down week of the year with its second-biggest up week of the year—and got back into positive territory for the year in the process:

Sector returns: The strongest S&P 500 sectors last week were real estate (+4.5%), materials (+3.7%), and consumer discretionary (+3.4%). The weakest sectors were consumer staples (+0.5%), energy (+0.9%), and health care (+1.5%).

Stock movers: Ispire Technology (ISPR) +51% to $16.30 on Tuesday and Gap (GPS) +31% to $17.85 on Friday. On the downside, Verve Therapeutics (VERV) -41% to $9.29 on Monday, The Children’s Place (PLCE) -25% to $21.45 on Thursday.

Futures: After trading as low as $72.37 last Thursday, a 4% Friday rally to $76.04 still wasn’t enough to keep January WTI crude oil (CLF4) from a fourth-straight down week. After tagging a one-month low of $1,935.60 last Monday, December gold (GCZ3) ended the week nearly $50 higher at $1,984.70. Week’s biggest gains: January orange juice (OJF4) +11.9%, December palladium (PAZ3) +8.5%. Week’s biggest losses: November Micro ether (METX3) -7.6%, December VIX (VXZ3) -6.2%.

It’s a surprisingly busy week for economic data, considering US markets will be closed Thursday for Thanksgiving, and will close early on Friday:

●Monday: Leading Economic Indicators
●Tuesday: Chicago Fed National Activity Index, Existing Home Sales
●Wednesday: Durable Goods Orders, Consumer Sentiment (final), Fed minutes (October 31-November 1 FOMC meeting)
●Thursday: Thanksgiving, US stock exchanges closed (limited trading in stock index, currency, and interest rate futures)
●Friday: Black Friday, US stock exchanges close at 1 p.m. ET, S&P Global Manufacturing and Services PMI (flash)

Retail earnings dominate the calendar for a second week, but there are also some few high-profile tech names in the mix:

•Monday: Agilent (A), Keysight Technologies (KEYS), Zoom Video Communications (ZM)
•Tuesday: Analog Devices (ADI), American Eagle Outfitters (AEO), Best Buy (BBY), Burlington Stores (BURL), Kohl’s (KSS), Lowe’s (LOW), Medtronic (MDT), Guess (GES), HP (HPQ), Nordstrom (JWN), Nvidia (NVDA), Urban Outfitters (URBN)
•Wednesday: Deere & Co. (DE), Dycom  (DY)
•Friday: Movado Group (MOV)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

While many people like to squeeze in a little extra down time around Thanksgiving, history suggests the stock market prefers to stay on the clock.

Thanksgiving week has never contained more than four trading days, and since US exchanges began closing early on Black Friday, it’s been working with only three and a half. Nonetheless, from 1950–2022 the SPX moved almost as much (+/-1.5%, on average) during Thanksgiving week as it did during its average five-day period (+/-1.6%). Also, while the SPX has closed higher on 53% of days since 1950, its tendencies for some of the days around Thanksgiving have been notably different:

1. The SPX closed up the day before Thanksgiving in 56 of 73 years (77% of the time).
2. The SPX closed up the day after Thanksgiving (Black Friday) in 51 years (70% of the time).
3. The SPX closed down the Monday after Thanksgiving in 45 years (62% of the time).¹

Last year the SPX went two for three, closing higher the day before and after the holiday, closing slightly lower on Black Friday, and falling again the following Monday.

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¹ Reflects S&P 500 (SPX) daily closing prices, 1/2/50–12/31/22. Thanksgiving week range represents the percentage change in the SPX from the Friday before the holiday to the Friday after it. Supporting document available upon request.