Wentz Weekly: Market Rotation Continues, Rate Cut Odds Increase

Wentz Weekly Insights
Market Rotation Continues, Rate Cut Odds Increase

US stocks saw significant weakness last week outside of a late rally on Friday after the market rotation continued with the S&P 500 down for the second week of the past three and the Nasdaq down for the third in a row, falling 1.95% and 2.74%, respectively. Some of the highest beta names underperformed the most, like Bitcoin which fell over 10% and the technology sector that fell nearly 5%, while value sectors performed the best, like healthcare that was up nearly 2% and consumer staples that rose 1%.

The tech underperformance came despite another blowout quarter from the largest company in the world, Nvidia. The company reported its quarterly financial results after the market close Wednesday with its revenue of $57.01 billion over $2 billion more than expected with data center (AI chips) revenues rising 66% from a year ago. Its guidance was even better – its forecasting Q4 revenue of $65 billion, about $3 billion more than analysts’ estimates. In addition, its margins were better at 73.6% and it is targeting an improvement to 75.0% in Q4.

CEO Jensen Huang downplayed the circularity concerns and any supply worries and was very optimistic on its next GPU architecture Rubin in 2026 (its next gen GPUs), while saying its older generation GPUs are still being fully utilized.

Another blowout quarter from Nvidia was not enough to offset the broader AI concerns relating to valuations/bubbles, circularity, return on investment, and debt financing. Markets attempted several rallies that failed to gain traction, like Thursday’s trading where markets opened up over 1.4% but quickly reversed only to closed down 1.6% for the day. Goldman Sachs noted the S&P 500 has closed negative only two other times after starting up more than 1.4% at the open (April 2020 from Covid and April 2025 from the tariff announcement).

Sentiment was also hit after learning another large hedge fund sold off its Nvidia stake and after comments from Alphabet/Google’s CEO, Sundar Pichai. He said the AI investment is an extraordinary moment but warned there are “elements of irrationality” in the market, drawing a parallel with the dot-com bubble saying while there was a surge in investment then, the internet was still “profound.” He said no company, including Google/Alphabet, will be immune if the AI bubble bursts.

The other storyline related to economic data and the Fed’s next move with interest rates. For the first time since September 5 we saw labor market data from the Department of Labor. Although it was old data from September it was still closely followed since the data from October will not be released (due to lack of survey data from the shutdown).

The report showed 119,000 job gains in September, more than double what was expected and above the year-to-date average of 76,000, however revisions for August took a 22,000 gain to a 4,000 loss. In addition, the household data showed the unemployment rate ticked up to 4.4%, the highest since October 2021.

Adding onto that, continuing jobless claims increased to 1.974 million, the highest since November 2021. Rate cut probabilities for the Fed’s December meeting jumped after the data releases, which may explain the rally in stocks Friday as well as the drop in Treasury yields, after odds jumped from around 40% to over 70%.

Government data agencies said the next labor report and consumer inflation reports (for November) will not be released until mid-December, after the Fed meeting, and with the lack of additional data, it appears to be more of a toss up on if the Fed chooses to implement another rate cut.

Looking forward, we will see a short week with markets closed Thursday for Thanksgiving and closing early Friday, at 1:00pm, for a half day. However, there are still many economic data releases and earnings before the holiday break (see “the week ahead” at the bottom).

Then, of course, comes the Black Friday shopping weekend. Several reports are out with estimates for consumer spending growth this shopping season. PwC sees holiday shopping slowing this year, with consumers planning to cut spending by 5% compared to last year, the first meaningful decline since 2020. Its survey said 84% of Americans expect to cut spending over the next six months due to rising costs.

Meanwhile, Adobe sees another pickup in online spending. Its spending report said it estimates Americans will spend 5.3% more online this year compared to last with 1 in every 4 dollars being spent online. However, this is a noticeable slowdown from the 8.7% growth seen last shopping season. We expect AI-driven traffic to be a large factor in spending growth.

Week in Review:
The rotation in stocks continued last week in what ended up being another risk-off week. The four major US stock indices finished as follows: Russell 2000 -0.78%, Dow -1.91%, S&P 500 -1.95%, and Nasdaq -2.74%. Bonds had a positive week as yields fell across the curve. The 2-year Treasury yield fell 9 basis points to 3.52% while the 10-year yield fell 8 basis points to 4.07%. The dollar index increased 0.89% (up about 4% from the year’s low in September), while gold fell 0.27%, remaining at all-time highs. Bitcoin was one of the worst asset classes, falling 9.86% over the week. Meanwhile, oil fell 3.38% from plans to end the Russia/Ukraine war and phase out Russian sanctions.

• Employment Situation (Delayed): The Department of Labor said job gains in September (originally set to be released October 1) totaled 119,000, over double the 50,000 expected and more than the 76,000 monthly average so far this year. Most of the job gains came from education and health services, along with leisure and hospitality and retail trade. Job losses were seen in transportation and professional services. The household survey showed 470,000 people entered the labor force, bringing the labor force participation rate to 62.4%, though still about a full percent below the pre-pandemic rate. The number of people employed increased 251,000 while the number of people unemployed increased 219,000. The result was an increase in the unemployment rate to 4.4%, up from 4.3% for the highest since late 2021. Hourly average earnings increased 0.2%, half the increase experienced the month prior, and are up 3.8% over the past year. The market reaction was positive as there was concern we would see another month of job losses after seeing declines two of the prior three months.

• Jobless Claims: The number of unemployment claims the week ended November 15 was 220,000, a decline of 8,000 from the prior week. The number of continuing claims was 1.974 million, an increase of 28,000, which is the highest level of continuing claims since November 2021. The DOL also announced it will not release weekly claims numbers from October 2 through November 13 due to the lapse in government funding.

• Construction Spending (Delayed): Construction spending for August (originally scheduled for October 1 release) increased 0.2% in the month, better than the slight decline that was expected, and after falling for seven straight months is now up three months in a row. Spending on residential picked up with a 0.8% increase in the month while nonresidential construction spend fell 0.2%. Compared to a year ago spending is still down 1.6%, driven by both a 1.8% decline in residential and a 1.5% decline in nonresidential.

• Trade Balance (Delayed): The trade deficit for August (originally scheduled for October 7 release) saw a large decline, falling $18.6 billion to $59.6 billion for the month (meaning the US imported $59.6 billion more than what it exported in the month), the third smallest deficit going back over five years. The smaller deficit was due to a $0.2 billion, or 0.1%, increase in exports to $280.8 billion, while imports fell $18.4 billion, or 5.1%, to $340.4 billion. The total amount of trade, an indicator of overall activity, declined $1.44 billion or 0.2% (all from imports), mostly due to trade uncertainty/tensions.

• Housing Market Index: The housing market index, an index on homebuilder sentiment, increased one point in November to 38, compared with the range of 32-47 over the past year. The index on present sales improved 2 points to 41, the index on expected sales over the next six months declined 3 points to 51, while the index on traffic of prospective buyers improved 1 point to 26. The survey suggests sentiment is still low but an improvement from the lows of the year in August.

• Housing Starts & Permits: Delayed

• Existing Home Sales: The number of existing home sales in October was at a seasonally adjusted annualized rate of 4.10 million, an increase of 1.2% in the month and the highest level since February, however up just 1.7% from a year ago. Sales were strongest in the Midwest and South, saw no change in the Northeast, and fell in the West. Inventory has seen consistent improvement in the past year, up 11% from last year, but in October supply of 1.52 million units was down 0.7% from September. The median price of an existing home was $415,200, an increase of 2.1% from a year earlier.

• Industrial Production: Delayed

• Consumer Sentiment: The consumer sentiment index was 51.0 in November, falling below the lowest levels of the year (which came after the April tariff announcement) and the second worst reading in the history of the survey going back to the 1980s. Despite the federal shutdown ending, sentiment remained weak due to persistence of high prices and weakening incomes. The index of current conditions was 51.1, dropping from 58.6 in October. The index of expectations improved slightly from 50.3 in October to 51.0. The expectations for inflation over the next year ticked down from 4.6% to 4.5%, while the expectations for inflation over the next 5 years moved from 3.9% to 3.4%.

Company News

• Apple: The Financial Times is reporting Apple is accelerating its CEO succession planning on reports Tim Cook may step down as soon as next year. Separately, Bloomberg reported Apple is preparing for the biggest iPhone revamp in its history, with three completely new models set to be released over three consecutive years. The report says the move gained traction last September after increased criticism Apple was too heavily dependent on the iPhone while rivals advanced in AI and emerging hardware categories. A foldable phone is expected next fall while a premium device with curved glass and under-display camera is slated for 2027. Also separately, Bloomberg reported Apple’s market share in China has surged to 25% for the first time since 2022 amid successful launches of its latest iPhones.

• Anthropic: Microsoft, Nvidia and one of the AI leaders Anthropic announced a strategic partnership where Microsoft and Nvidia will commit investing up to $5 billion and $10 billion, respectively, in Anthropic while Anthropic will commit to purchase $30 billion worth of Microsoft’s Azure compute capacity and to contract additional compute capacity up to one gigawatt. The deal now values Anthropic at $350 billion, up from $183 billion in September. Again, this brings up the circularity concern (where companies invest in each other but there is no new real revenue growth).

• Warner Bros. Discovery: CNBC reported Netflix is considering the offer to acquire Warner Bros. Discovery “very seriously” ahead of the deadline for companies to submit takeover bids. However, there are antitrust implications of owning HBO with Netflix. Other companies in the running for Warner Bros. include Paramount, Comcast, Amazon, Apple, and private equity. Another report added Warner Bros. is looking for an offer closer to $30/share versus the most recent offer of $23.50/share from Paramount Skydance.

• Nvidia: Bloomberg reported later Friday that the Trump Administration is having internal deliberations in recent days on allowing Nvidia to sell its H200 chips (its more advanced AI chips) to China. It cautions no final decision has been made and it could still decide to continue restricting sales.

Other News:

• UK Ticket Resale Market: UK regulators are planning a new law to ban the resale of tickets above their face value for live events. It would be a major blow to secondary market ticket platforms like StubHub, etc. These platforms argue the proposal would create an illegal black market for tickets.
• Russia/Ukraine War: The Trump Administration is working on a new plan with Russia to end the Ukraine war, with reports saying the new proposal pushes Ukraine to accept surrendering territory and rolling back some military capabilities.

• China’s Troubled Property Market: China is considering a new and aggressive package of stimulus that would target the troubled property sector as it is increasingly concerned the crisis is causing deeper stress in the banking sector and is threatening the whole financial system, according to Bloomberg. China’s housing market has been in a deep four-year downturn that has weighed on its economy. Options include mortgage subsidies to new homebuyers nationwide, raising income tax rebates for existing mortgage borrowers, and reducing the costs associated with buying/selling.

• Fed Speak:
  • Fed Governor Waller, a known dove, called for another rate cut at the Fed’s next meeting in December to add additional insurance against an acceleration in a weakening labor market and in effort to move policy more toward neutral.
  • Richmond Fed President Barkin talked about how the Fed is seeing pressure on both sides of the mandate (inflation above target and job growth softening) but when talking to businesses he says they describe the labor market as weaker, and when talking about inflation he seemed more optimistic.
  • Cleveland’s Hammack said she believes the Fed should maintain a somewhat restrictive policy stance (keeping rates higher than the neutral rate) because inflation remains significant despite a slowing labor market and said she believes rates are currently “barely restrictive, if at all.”
  • Chicago’s Goolsbee said he is a little uneasy about inflation because the rate seems to have stalled and may have even moved higher, indicating he is opposed to additional rate cuts.
  • New York’s Williams said he still sees more room to cut rates this year due to the “downside risks of employment increasing as the labor market cools while the upside risks to inflation have lessened somewhat.”

WFG News

Thanksgiving Weekend Office Hours

Please note that our offices will be closed Thursday November 27 and Friday November 28 for the Thanksgiving holiday.

IRS Announces 2026 Contribution Limits:

• 401k, 403b, and 457 plans: The contribution limit increases $1,000 to $24,500. Catch up contributions, for those over the age of 50, increases $500 to $8,000. The “Super catch-up”, for those aged 60-63, remains at $11,250.
  • Another important rule to note that goes into effect next year – For those age 50 and over that make more than $150,000, any catch up contribution must be made as a post-tax Roth contribution (rather than a traditional pre-tax contribution).
• IRAs (Traditional IRA and Roth IRA): The contribution limit increases $500 to $7,500. The catch up contribution, for those over the age of 50, increases $100 to $1,100.
• Simple IRAs: The contribution limit increases $500 to $17,000. Catch up contributions, for those over the age of 50, increases $500 to $4,000. The “Super catch-up”, for those aged 60-63, remains at $5,250.

Medicare Open Enrollment

Medicare open enrollment period runs from October 15 to December 7 each year and during this period, individuals are able to make changes to their current Medicare coverage. Individuals on Medicare should receive an Annual Notice of Change and/or Evidence of Coverage for Medicare Advantage or Part D plan. This is a good time to review coverage, as medical needs, benefits, and premiums may have changed over the year. During this time here are some things to consider:

• Will your primary doctor still accept you Medicare Advantage Plan?
• Have your medical needs changed? Different plans offer different benefits and different costs
• Are there comparable, lower cost plans available? Don’t forget to consider out-of-pocket costs when comparing options
• Are you medications still on your plan’s list of covered medications?