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@theMarket: Investors Gave Thanks for Market Gains

By Bill SchmickiBerkshires Columnist
This holiday-shortened week is usually a good one for stocks. Volumes are lower, and as the week progresses, fewer participants are at their desks. Whatever the reason, markets recouped all last week's losses.
 
The pullback may be over. At last tally, the S&P 500 Index pulled back about 5 percent. We may retest the lows, but we will cross that bridge if we come to it. In the meantime, let's look at some economic numbers.
 
Government data is beginning to be released, albeit slowly and in fits and starts. U.S. initial jobless claims for the period ending November 22 fell, the third consecutive drop, and are now at their lowest level since February. The data reflect a low magnitude of new jobless claims in the economy.
 
However, retail sales for September came in below economists' expectations, climbing a mere 0.2 percent, which was half the reading that economists expected. To put that in perspective, the August data showed a 0.6 percent gain.
 
This data point is important because consumer spending has a massive influence on economic growth in this country. It represents 67.7 percent of the U.S. Gross Domestic Product. If we couple that sales weakness with the government shutdown that began in October, consumption of goods and services will likely decline in the last quarter of the year.
 
During the earnings season, which ended last week, Target, Home Depot, and Walmart have all indicated that their businesses are facing ongoing pressure from lower and middle-income households due to higher inflation, tariffs, and interest rates that have squeezed budgets.
 
Producer prices for September also rose slightly on the back of higher energy costs. Investors were expecting the advanced estimate of third-quarter GDP this week, but were disappointed. The Bureau of Economic Analysis canceled it along with the preliminary corporate profits report. That leaves investors and policymakers in the dark as we enter the crucial holiday shopping season.
 
We already know that consumers of all income levels (except the very top earners) are trading down this season or have front-loaded their holiday purchases to avoid Trump's tariffs. In my October columns, "Trump's Tariffs and the Holidays" and "Americans Are Getting Stingier," I warned readers that holiday sales might not be as strong as many Wall Street analysts expect. I hope I am wrong.
 
White House economic adviser Kevin Hassett is now the leading contender to become the next Federal Reserve Bank chair. Treasury Secretary Bessent, tasked with interviewing replacements for outgoing Chair Jerome Powell, said it was possible there would be an official announcement of the president's choice in December.
 
If Hassett is selected, there is no doubt that not only will interest rates be cut deeply, but he will also do everything he can to further the administration's economic policies. As a member of both Trump administrations, he is a champion of Trump's tax policies, trade policies, deregulation, and public health initiatives. His appointment would likely damage the notion of an independent central bank in the U.S.
 
As for the markets in this holiday-shortened week, stocks have gained every day since last Friday, anticipating that the Fed will cut interest rates once again when it meets on December 9-10.
 
We may see some profit-taking in the week ahead, but we are now officially in a period when large global flows of funds will need to find a home. Corporations pay yearly bonuses. Savers fund their retirement accounts. Banks provide additional liquidity. This liquidity flow occurs almost every year and, unless something out of left field occurs, much of this new money finds its way into stock markets. Many call it the Santa Claus rally, although Saint Nick has little to do with it. I hope you all had a Happy Thanksgiving. Now go out there and shop (or not).
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

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