The Week That Was, The Week Ahead: Macro & Markets, November 24, 2024

Everything to Know about Macro and Markets

Stock markets were a sea of green this past week, with all but one S&P 500 sectors closing the week higher. The S&P 500 (SPX) gained 1.68%, while the Dow Jones Industrial Average (DJIA) jumped by 1.96%, reaching a new record. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) rose by 1.73% and 1.87%, respectively.

“Animal Spirits” Amid Sector Rotation

Stocks rose for five straight trading days on rekindled outlook for an improved business climate – i.e., lower taxes and fewer regulations, driving up profits – under the new U.S. administration. Markets resumed their rally despite some uncertainty around the Trump administration’s future policies and escalating geopolitical tensions as the conflict between Russia and Ukraine flared up.

Cyclical and domestically-oriented stocks led the gains, with Consumer Staples, Materials, Real Estate, Utilities, and Industrials far outpacing gains in Technology stocks. Investors projected that Trump’s tariffs would boost U.S. manufacturing, upping their bets for cyclicals such as industrial firms and materials producers. Utility stocks were strongly boosted by Nvidia’s remarks about the AI surge.  

In addition, last week investors pulled money from growth stocks to bet on value, with the latter seen as having particularly promising prospects under the new administration while being undervalued. As a result, Financials and Energy continued their climb higher, with the former rising to the top of the year-to-date sector performance table.

Small caps surged by almost 4.5% over last week, which drove the former laggards’ 52-week performance above that of the large-cap S&P 500. Smaller companies tend to be domestically oriented and are therefore projected to gain the most from Trump’s tariffs.

Money is Flowing Home

According to a Bank of America report, investor inflows into U.S. stocks are on course for a record year. U.S. equity ETFs and mutual funds attracted almost $56 billion in the week after the November 5^th elections, the second-largest weekly inflows on record and the seventh straight month of investor money flowing into domestic stocks.

In recent weeks, the typical year-end portfolio reshuffles by money managers added to the inflows, as most analysts project continued outperformance of U.S. stocks versus the international ones well into 2025. State Street Global Advisors analysts said that inflows into ETFs alone could reach $1.1 trillion by year-end, an all-time high.

Are Stocks Priced to Perfection?

Corporate earnings took center stage this week, with Nvidia’s report a defining moment of the earnings season. While analysts dubbed the report “near perfect,” investors were less persuaded as short-term outlook was not as strong as was expected. The negative investor reaction highlighted the weight of high expectations on technology stocks in general and the AI leader in particular.

Tech stocks, and specifically semiconductor large caps that have clocked in outsized gains in the past two years riding the AI train, now seem to be in a consolidation phase as investors weigh  further prospects versus their often-hefty valuations. The market as a whole is trading at valuations far higher than the historical averages, which portends lower long-term gains going forward.

The good news for investors is that there are plenty of fairly-priced stocks within the large-cap universe, and there are even more options that are below the large market-cap threshold. The equal-weighted S&P 500, which assigns all index constituents the same weight, trades only a tad above its 10-year average multiple.

Meanwhile, mid- and small-cap stocks are still below their long-term valuations. The robust economic backdrop, coupled with the expected policy changes under Trump 2.0, supports optimistic outlook for stocks that until a couple of months ago were all but forgotten, overshadowed by some of their flashier peers. However, the tech behemoths such as the “Magnificent” pack, with their fortress balance sheets, enormous cash piles, and strong earnings growth, should not be dismissed, as the AI revolution has just begun.       

Stocks That Made the News

▣ Nvidia (NVDA) injected a great deal of volatility into the market last week. The company beat average analyst expectations, although it missed the highest ones. Still, surging demand for its offerings was obvious as sales almost doubled year-on-year. However, the fourth-quarter guidance underwhelmed, with the AI darling projecting growth of “only” 70% year-on-year. Still, analysts dismissed the short-term revenue slowdown caused by production bottlenecks, raising their price targets and raving about surging AI demand and spending growth.

▣ Communication Services was the only S&P 500 sector to finish in the red last week, with the decline driven in part by a drop in Alphabet (GOOGL). The stock declined following reports of the U.S. Justice Department filing a proposal to break up the giant, forcing it to sell Chrome browser. However, analysts don’t seem to be concerned with some even lifting their price targets. Thus, according to Robert W. Baird analysts, the DOJ’s demands are unlikely to be approved by court, as they go against the precedent where the DOJ’s efforts at breaking up Microsoft in the early 2000s were overturned in court.   

▣ Another stock that saw analyst upgrades amid sell-off was Intuit (INTU), which dropped on investor worries over the new administration’s plans to create a mobile tax filing app. However, analysts doubt that developing such an app will be a high priority for the IRS, particularly in light of its failed attempt at direct online tax filing. Intuit’s earnings report added to its stock volatility despite beating revenue and earnings expectations, as the TurboTax and Credit Karma parent issued an underwhelming outlook for the current quarter.  

▣ Super Micro Computer (SMCI) wasn’t rewarded by analyst upgrades despite surging by over 50% on the week and turning positive year-to-date. The AI server maker’s weeklong rally followed the hiring of a new auditor, the filing of a plan to return to compliance to avoid delisting from Nasdaq, and receiving a shoutout from partner Nvidia in the chipmaker’s earnings call.

▣  Walmart (WMT) saw its shares surge to a new record after the largest U.S. retailer topped earnings estimates and raised guidance. On the other hand, Target (TGT) dropped by over 18% after it missed analysts’ EPS consensus and slashed 2025 guidance.       

Upcoming Earnings and Dividend Announcements

The Q3 2024 earnings season is winding down, but many newsworthy earnings releases are still scheduled for this week.

The most notable earnings releases this week are coming from Zoom Video Communications (ZM), Agilent (A), Dell Technologies (DELL), CrowdStrike Holdings (CRWD), Workday (WDAY), Autodesk (ADSK), and Dick’s Sporting Goods (DKS).

Ex-dividend dates are coming this week for Atmos Energy (ATO), CDW (CDW), Johnson & Johnson (JNJ), Home Depot (HD), Dominion Energy (D), Coca-Cola (KO), and other dividend-paying firms.       

For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.