IS THE STOCK MARKET AT AN INFLECTION POINT?

DJIA

• 52-wk:?+29.91%
• YTD:?+11.74%
• Weekly:?±2.68%

S&P 500

• 52-wk:?+41.06%
• YTD:?+21.77%
• Weekly:?±0.96%

NASDAQ

• 52-wk:?+46.47%
• YTD:?+23.36%
• Weekly:?+0.16%

SPDR S&P Retail ETF

• 52-wk:?+30.37%
• YTD:?+4.40%
• Weekly:?-3.35%

LAST WEEK

The stock market experienced a mixed performance. After a six-week winning streak, major indices saw some losses. The S&P 500 dropped 0.8% for the week, marking its biggest decline since early October. The Dow Jones Industrial Average and Nasdaq Composite also faced minor declines, despite a late-week rally. The market faced pressure from concerns about economic conditions and interest rates.

On the bright side, sectors like consumer durables, communications, and health services showed resilience, while Tesla’s stock surged nearly 25% after posting better-than-expected earnings. In contrast, sectors like producer manufacturing and health technology underperformed. Rising Treasury yields and uncertainty over future Federal Reserve rate cuts contributed to the cautious sentiment.

Gold reached new heights, while Bitcoin consolidated after a strong prior week. The focus is now shifting to upcoming earnings from major tech companies like Alphabet, Microsoft, and Apple.

Sources:?Briefing.com,?Fidelity Investments

ECONOMICALLY SENSITIVE STOCKS

Economically sensitive stocks took the worst hit. Retail, banking, and industrial stocks all fell 2% to 3%, and it appeared that investors were simply taking profits after the S&P 500 entered the past week up 23% in 2024. "You don’t need much of an excuse to move the market down," said Keith Lerner, co-chief investment officer at Truist Wealth.

BOND YIELDS & ELECTION DAY

The 10-year Treasury yield rose to 4.22% from 4.08% this past week and from a 2024 low of about 3.62% on Sept. 16.

The rise is likely a reflection of the fact that the Federal Reserve will cut interest rates fewer times than investors had thought after September’s Federal Open Market Committee meeting, a result of inflation being above its target and a job market that has grown.

Also, Donald Trump’s chances of winning the presidential election have risen in the past few months, according to RealClearPolitics. His policies include fiscal spending and tariffs, both of which create inflation and throw cold water on the idea that the Fed will cut rates many times. While the economy could continue to grow, tariffs, for their part, not only lift prices, they destroy demand.

"Yields have moved up, so there’s a reset of Fed expectations, and now we’re two weeks away from the election," Lerner says.

Fewer rate cuts could easily dent stocks. The last time the two-year yield, which reflects the expected path of monetary policy, sat above 4% was in late August when the S&P 500 was at 5570, 5% below its current 5840. Yes, the market is anticipating growing economic activity and rising profits, but once it starts to see what the bond market sees—potentially too much inflation, a possible Trump victory, and fewer rate cuts—equities will likely falter.

Of course, a lot can change in a few weeks. October’s payroll report will be released this coming Friday, and it could easily change sentiment if it comes in too hot or too cold. The following week, Election Day will be quickly followed by Fed Day, and we’ll be looking at a very different investing backdrop than what exists today. Who knows? Maybe it will just confirm that the Fed can keep cutting rates and that the economy is holding up, which wouldn’t be such a bad thing.

"The market’s soft landing sentiment requires a balance of lower rates and still solid economic activity," says Citigroup strategist Scott Chronert.

That balance is important. Without it, stocks could crack.

THESE STOCKS MOVED THE MOST ON FRIDAY

• Tesla (TSLA +3.34%)
• Tesla shares were up 3.3%. Shares jumped 22% on Thursday for the stock’s best one-day gain in more than 11 years following better-than-expected quarterly earnings and operating profit margins from the electric-vehicle maker.

• Nvidia
• Nvidia rose 0.8% to $141.54. The stock had closed at a record high of $143.71 on Monday. The chip maker trails only Apple on the list of largest U.S. companies by market cap.

• Capri Holdings (CPRI -48.89%)
• Shares of Capri Holdings, the owner of luxury brand Michael Kors, sank 49% after a judge granted the Federal Trade Commission’s request to block the company’s intended merger with competitor Tapestry, which announced plans to acquire Capri in August 2023. Shares of Tapestry, which owns brands such as Coach and Kate Spade, rose 13.5%.

• Western Digital (WDC +4.72%)
• Western Digital swung to a profit in its fiscal first quarter and adjusted earnings at the data-storage company topped analysts’ expectations as cloud sales rose 153% from a year earlier.

THIS WEEK’S INTERESTING SECTOR PIECE: THE BOND MARKET'S EFFECT ON STOCKS

Bond market volatility is back—and a handful of stocks are particularly susceptible to its gyrations.

It’s been a wild year for Treasury investors. The yield on the two-year note peaked at about 5% in April, then dropped to a 2024 low of about 3.5% in September, when the Federal Reserve cut the short-term benchmark lending rate by half a point. Since then, the yield has risen to just over 4%.

Bond volatility has a way of rattling the stock market—and it’s especially problematic for companies with large amounts of variable-rate debt.

CLOSING REMARKS

The stock market is at an inflection point. Proceed with caution.

Factors this week I’m focusing on:

1. Earnings reports from GOOGL on Tuesday, META & MSFT on Wednesday, AMZN & AAPL on Thursday.
2. PCE price index on Thursday
3. Jobs Report on Friday

Richie

DISCLAIMER

This content (“Content”) is produced by Richard Naso. The Content represents only the?views?and opinions of Mr. Naso who is compensated by TradeZero for producing it. Mr.?Naso’s trading?experiences and accomplishments are unique, and your trading results may?vary substantially?from his. TradeZero does not endorse the Content and makes no?representations or warranties with respect to the accuracy of the Content or information?available through any referenced or?linked third party sites. The Content has been made?available for informational and educational?purposes only and should not be considered?trading or investment advice or a recommendation?as to any security.

Trading securities?can involve high risk and potential loss of funds.?Furthermore, trading on margin is for experienced investors and traders only as the amount you?may lose can be greater than?your initial investment. Likewise, short selling as a securities?trading strategy is extremely?risky and can lead to potentially unlimited losses. Options trading is?not suitable for all?investors as it can involve risk that may expose investors to significant losses.?Please read?the Characteristics and Risk of Standardized Options, also known as the options?disclosure?document (ODD) at https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document before deciding to engage in options trading.

TradeZero provides self-directed brokerage accounts to customers through its operating?affiliates: TradeZero America, Inc., a United States broker dealer, registered with the?Securities and Exchange Commission (SEC) and member of the Financial Industry?Regulatory?Authority (FINRA) and the Securities Investor Protection Corporation (SIPC);?TradeZero, Inc., a?Bahamian broker dealer, registered with the Securities Commission of?the Bahamas; and?TradeZero Canada Securities ULC, a Canadian broker dealer, member?firm of the Canadian Industry Regulatory Organization (CIRO) and member of?the Canadian Investor?Protection Fund (CIPF).