Wentz Weekly: Stocks Move Higher on Rate Cut Hopes

Wentz Weekly Insights
Stocks Move Higher on Rate Cut Hopes

Stocks finished the holiday shortened trading week, and the half trading day Friday, on a five day winning streak to post a strong weekly gain. In fact, at the lowest level of the month, on November 20, the S&P 500 was down 4.4%, and after Friday’s gains, the index is now positive for the month, making it the largest swing from red to green for the month of November ever.

The names that have underperformed during the drawdown most of November, like the most shorted stocks, AI stocks, and other high-beta names, outperformed for the week and drove markets higher. The communication services, consumer discretionary, and technology sectors were each up over 4% while energy and consumer staples were up the least. After spiking to nearly 30 points, the volatility index (VIX) fell back to the 16 range for the lowest level of the month.

It was less than two weeks ago the S&P 500 was down almost 5% for the month with investors worrying about the economy, AI’s frothiness, and the odds of the Fed pausing interest rate cuts. The reversal in stocks and improved sentiment seems to have been sparked by renewed hope for rate cuts by the Federal Reserve.

The Fed holds its last meeting of the year next week, and with the lack of government economic data and stubbornly high inflation, along with employment data that was neither strong nor weak, the probability of a rate cut for the meeting fell to just under 30% less than two weeks ago. However, a sharp reversal began a few days ago and by the end of last week the odds of a cut moved over 85%, according to Fed Funds futures.

We can try to blame several things – the re-opening of the government (and incoming flood of delayed economic data), more welcoming inflation data, or even recent comments from more notable Fed officials. Last week both Governor Waller and San Francisco President Daly voiced their support for a rate cut, which followed comments from NY Fed President Williams the Friday prior that there was further room for adjusting rates [lower] in the near term.

We also saw an article from the WSJ last Monday that said allies of Chairman Powell have laid the groundwork for him to push through rate cuts, despite a divided committee that is likely to have several dissents. We understand the Fed does not like to surprise the markets with their decisions, and with odds for a rate cut so low, the article could have been a nudge to markets to adjust their expectations higher.

While Thanksgiving weekend/Black Friday sales are closely followed, it doesn’t appear it will be enough to move markets this year. Mastercard SpendingPulse data shows US retail sales, for both in-store and online, increased 4.1% on Black Friday compared to the prior year. Sales were driven by a 10.4% increase in online sales and to a lesser degree 1.7% increase in in-store sales.

Data from Adobe Analytics was similar – it said Black Friday online sales increased 9.1% compared to last year. Adobe said the record spending of $11.8 billion shows Black Friday has cemented its role as a major e-commerce moment, as more shoppers stay home. Still though, discounts are expected to remain elevated through Cyber Monday, which is expected to remain the busiest online shopping day of the year.

After a holiday weekend, investors are back to a busier week with more earnings reports and economic data. Earnings will come from more retailers along with several higher profile tech names. Data includes some of what was delayed for the month of September as well as new data for November, while the November jobs report originally scheduled Friday will be delayed to mid-December. On the Fed side, we will hear from Chairman Powell Monday evening before the Fed is in a quiet period ahead of its December 10th meeting.

Recent Economic Data

• Producer Price Index (Delayed): The producer price index increased 0.3% in September, in line with expectations, while the core index (which excludes food and energy prices due to their volatility in price changes) increased 0.1%, less than the 0.3% expected. Prices for final demand goods increased a higher than usual 0.9%, due mostly to a 3.5% rise in energy prices, while prices for final demand services were unchanged.

• Retail Sales (Delayed): Retail sales for September increased 0.2%, a slowdown from the 0.6% increase from August and about half the growth that was expected. Of the 13 major retail categories, 8 of them saw increasing sales, led by miscellaneous stores (+2.9%), gasoline (+2.0%), and health/personal care stores (+1.1%), while declines were seen in sporting goods/hobby stores (-2.5%), and apparel and online sales (both -0.7%). Compared to a year ago retail sales have increased 4.3%, about 1.5% higher than inflation.

• Case Shiller Home Price Index: The Case Shiller home price index showed home prices struggled to make gains again in September with home prices falling 0.3% in the month (but up 0.2% after seasonal adjustments). Home prices are up just 1.3% over the past year, a slower pace than the month prior for the eighth consecutive month. Strength in home price continued its geographic rotation, with gains in the Midwest like Chicago leading all cities (up 5.5%), followed by Northeast areas like New York City (+5.3%), and Boston (+4.1%), and the largest home price declines in South and West like Tampa (-4.1%), Phoenix (-2.0%), and Miami (-1.3%).

• Jobless Claims: The number of jobless claims the week ended November 22 was 216,000, down 6,000 from the week prior with the four-week average at 223,750. The number of continuing claims was 1.960 million, down 7k from the week prior which was a 4-year high, with the four-week average at 1.956 million.

• New Home Sales: Delayed
• Durable Goods Orders: Delayed
• GDP: Delayed
• Personal Income and Consumer Spending: Delayed
• Trade Balance: Delayed

Company News

• Google: AI chip stocks like Nvidia and AMD fell after The Information reported Meta is in talks to spend billions on Google’s new AI chips, known as tensor processing units (TPUs), that it is developing itself (in partnership with Broadcom), which created concern Nvidia and AMD would lose market share in the AI chip market.

• Amazon: Amazon said it will invest up to $50 billion, or 1.3 gigawatts worth of capacity, to expand AI and supercomputing for its AWS (Amazon Web Services – its cloud services) US government customers. This will give government customers access to AWS’s AI services to help develop AI solutions, optimize datasets, and enhance workforce productivity. 

Other News:

• Reforming the Affordable Care Act: Politico reported the Trump Administration is getting ready to reveal a new framework of a plan to reform the Affordable Care Act that would include a 2-year extension of subsidies, which are set to expire the end of this year. The plan includes letting individuals have the choice to receive some sort of tax credit in a tax-advantaged savings account in exchange for selecting a lower premium plan. The initial plan was to be unveiled last week but was reportedly delayed.

• Russia/Ukraine War: NBC said US and Ukraine representatives met in Geneva Sunday to draft an updated and refined framework for a peace agreement to end the Russia/Ukraine war, but it did not contain specifics. The administration initially proposed a “28 point” plan. A WSJ report later said, citing European officials, sticking points remain around what will happen with key territory, which it says will be decided at the Presidential level. The Geneva meeting ended with an updated and refined agreement, bringing the 28 points down to 16, including capping Ukraine’s military at 800k. Early reports indicate Russia will reject the revised peace plans.

• Trump/Xi Phone Call: President Trump held an hour long phone conversation with China’s President Xi last week in what Trump called a “good telephone call.” The call came quickly after Japan’s new prime minister said Japan’s military could be drawn into Taiwan if a crisis emerged. China responded to Trump by saying returning Taiwan to China is an “integral part of the postwar international order.” The two committed to meeting in Beijing in April, according to Trump.

• OPEC: Oil was slightly higher last week and trading almost 2% higher early Monday after OPEC agreed in principle over the weekend to leave oil production levels unchanged through the first quarter 2026, as was expected, as the group remains cautious around the seasonally softer demand. Recall OPEC has brought back to the market around 2.9 million barrels/day worth of supply since April 2025. However, the group still has about another 3.2 million barrels/day of output cuts still in place that were cut during the pandemic.

• Fed Speak:
  • Governor Waller’s comments advocated another rate cut in December, but he said after that the Fed should take a meeting-by-meeting approach.
  • San Francisco’s Mary Daly said in a WSJ interview that she believes a larger slowdown in the labor market is more likely and harder to manage than inflation rising again and the risks of inflation reaccelerating is lower. Because of this she supports another rate cut in the December meeting.
  • The Wall Street Journal reported this last week that Fed Chair Jerome Powell’s allies have essentially laid the groundwork for him to advocate for a December rate cut, despite the possibility of several dissents for no change in rates.

WFG News

WFG Investment Classes:

Interested in learning more about investing and how the markets work? Wentz Financial Group holds various Investment Basics classes throughout the year. Contact us for details!  

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?