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Tech Stocks Propel Market to New Heights Amid Mixed Economic Data
In the initial trading week of December, technology stocks exhibited significant strength, contributing to record closing highs for both the S&P 500 and Nasdaq Composite. The Nasdaq led the charge with a notable 3.3% weekly gain, while the S&P 500 rose nearly 1%. Both indices are now experiencing a three-week winning streak. In contrast, the Dow Jones Industrial Average faced a decline, pressured largely by the performance of UnitedHealth Group following the tragic death of its insurance segment CEO, Brian Thompson, in New York City.
Labor Market Insights from November
A key economic highlight of the week was the nonfarm payrolls report released on Friday, which revealed that the U.S. economy added 227,000 jobs in November, exceeding the Dow Jones estimate of 214,000. The unemployment rate, however, ticked upward to 4.2%, aligning with projections. Average hourly earnings increased by 4% year-over-year, slightly above expectations, and this metric remains crucial for economists and investors as it offers insight into inflationary pressures in the economy.
Following the release of the jobs data, expectations grew for a potential quarter-point interest rate cut at the Federal Reserve’s mid-December policy meeting, as indicated by the CME FedWatch tool. Earlier in the week, private-sector job growth figures from payroll processor ADP reported an increase of only 146,000 jobs against a forecast of 161,500, demonstrating a mixed trend in employment growth.
Meanwhile, the economic data released throughout the week presented a varied picture. The November ISM manufacturing report, though indicating contraction at a reading of 48.4, showed improvement over the 47.5 expected. A composite reading below 50 indicates a contraction in the manufacturing sector. The Commerce Department’s report on October factory orders met expectations, rising by 0.2%, reversing two consecutive months of decline.
Performance in the Services Sector
The services sector also reported mixed results, with the November ISM services report falling short of expectations at 52.1 versus an anticipated 55.5. However, this still suggests ongoing expansion within a vital part of the economy, marking five consecutive months of growth in services according to the ISM report. Since June 2020, when the economy began to stabilize post-pandemic, 51 out of 54 readings have indicated expansion in this sector.
Technology Sector Highlights
Several notable movements were observed within the technology sector that contributed significantly to the S&P 500’s performance. Salesforce reported strong earnings and optimistic updates on its new artificial intelligence platform, Agentforce, resulting in a 9.7% surge in its stock over the week. Broadcom outperformed with a 10.8% gain, benefiting from a report that Apple plans to continue utilizing its radio-frequency chips in iPhones, contrary to previous speculation of a switch.
The technology sector ended the week up 3.4%, alongside the consumer discretionary sector, which climbed 5.85%, and communication services, which appreciated by 4.1%. It is noteworthy that Tesla and Amazon made significant contributions to the consumer discretionary sector’s strong performance, despite their conventional classification overlapping with tech stocks.
Energy Sector Struggles
In contrast, the energy sector, alongside utilities and materials, saw declines. Oil prices dropped for the second consecutive week, falling by 1.2%, while natural gas futures experienced an 8.5% decline, marking a break from their previous six-week upswing. As market participants look towards the upcoming inflation data, attention will be focused on the consumer price index (CPI) scheduled for release Wednesday.
Anticipated Economic Reports
Economists predict a 2.7% year-over-year increase in the headline CPI, with the core CPI— which excludes food and energy—expected to rise by 3.2%. Given the significant role of housing costs in driving inflation, the shelter price index will be particularly scrutinized in this report. Following that, the producer price index (PPI) is set for release on Thursday, with forecasts suggesting a 0.2% month-over-month increase.
Upcoming Earnings Reports
Investors are also looking forward to earnings reports scheduled after the market closes on Thursday for Broadcom and Costco. Analysts expect Broadcom’s earnings for the last quarter to be $1.38 per share on $14.1 billion in sales. In addition to these figures, investors will be keen on insights regarding Broadcom’s growth in AI networking and details about its merger with VMWare.
Costco is anticipated to report sales of $62.1 billion and earnings of $3.79 per share. While the sales data is largely known, focus will shift to profit margins, consumer foot traffic, and the effects of new technologies like card scanners on membership growth.
What Lies Ahead
The upcoming week will see a variety of earnings announcements, particularly from significant players like Oracle and AutoZone. As the market navigates mixed economic signals, all eyes will be on key inflation metrics and corporate earnings that could shape the future market sentiment.
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