Wentz Weekly: Black Friday Weekend Sales Strong

Wentz Weekly Insights
Holiday Sales Growth Reflecting Strength of US Consumer

It was a fairly mixed week for US stocks, one that saw a return in outperformance among mega cap and technology stocks with some tailwinds from tech earnings and optimism from Amazon’s AWS conference. Not only did tech do well, the consumer discretionary sector was the best performing with a 5.9% gain on the week after seeing solid Black Friday and Cyber Monday sales. In addition, several more retailers reported earnings results, like Ulta, Lululemon, Kroger, that were much better than expected.

Meanwhile, small caps and sectors like energy, utilities, and materials underperformed. In fact, the market cap-weighted S&P 500 outperformed the equal-weighted S&P 500 by about 2.3%, the widest gap since July. By the end of the week, the S&P 500 and Nasdaq had set new record highs for the fourth consecutive week.

Sales from Thanksgiving and Black Friday ended up being near or even better than some estimates, leading to a solid opening for stocks last week. There was a lot of data released last week but the most important was that Black Friday sales increased 3.4% over last year’s sales, with in-store sales increasing 0.7% and online sales increasing 14.6%, according to Mastercard SpendingPulse. The SpendingPulse report noted consumers were enticed by earlier deals this year and even so, Black Friday still saw sales growth. It said jewelry, electronics, and apparel were the top purchases and noted particular strength in online sales.

Another stat from Adobe Analytics said Americans spent $11.3 million every minute in online orders between the hours of 10:00am and 2:00pm on Black Friday. Other data by Adobe says Cyber Monday sales shattered records with consumers spending $13.3 billion online, a 7.3% increase from 2023, with mobile shopping accounting for 57% of all online sales.

The National Retail Federation is estimating holiday sales (November through December) this year will increase between 2.5% and 3.5%.

Part of the reason for strong consumer spending, including this holiday shopping period so far, has been the strength in the labor market. Data from the latest jobs report showed this strength continued in November. After a weak jobs report from October, with most of the blame on worker strikes and hurricane related impacts, November saw jobs growth of 227,000. In addition, there were not negative revisions for the prior two months, something that has been seen all year.

After being at arguably the tightest level ever during the pandemic, the labor market appears to have normalized. Job openings are back near pre-pandemic trends of around 7.5 million while the number of people employed at 161.14 million, is 3 million above pre-pandemic levels which is enough to keep up with population growth.

However, wage growth has remained elevated with wages rising another 0.4% in the month and are up 4.0% over the past year. While this is not extreme, it is high enough where it could keep upward pressure on inflation.

Despite this, the odds for a rate cut at next week’s Fed meeting increased from 60% prior to the labor report to around 90% after the labor data, and sits at 86% at the time of this writing Monday morning. Powell’s most recent comments last week suggests the Fed believes progress on disinflation may be stalling but comments from him and other policymakers indicate the Fed will continue with rate cuts, although likely at a slower pace than what it thought several weeks ago.

This week has the next round of inflation data on the calendar for Wednesday morning which may determine whether or not the Fed chooses to cut rates at the last meeting of the year next week. Anything higher than expectations, an increase of 0.3% in the month and 3.3% over the past year for core prices, may have the Fed leaning on the side of exercising more patience to gather additional data before making further moves.

Week in Review:

Last week saw a pretty mixed performance from stocks – there was a large outperformance from mega caps and consumer discretionary with an underperformance in small caps and sectors like energy, utilities, health care, and materials. The major US indices finished as follows: Nasdaq +3.34%, S&P 500 +0.96%, Dow -0.60%, and Russell 2000 -1.06%. The bond market saw little fluctuation with Treasury yields slightly lower across the curve. The 2-year Treasury yield fell five basis points to 4.11% while the 10-year yield fell one basis point to 4.17%. Bitcoin hit a new milestone, rising over $100,000 for the first time ever as momentum continues with a 2.5% increase for the week. The dollar index rose 0.3% while gold fell 0.8% from all-time highs. Crude oil fell 1.2% despite the OPEC decision to maintain oil supply cuts.

Recent Economic Data

• Job Openings & Labor Turnover Survey: The number of job openings increased 372k in October to 7.744 million which look as if they have stabilized – roughly unchanged over the past several months, but still down about one million over the past year and nearly in line with the pre-pandemic trend of about 7.3 million. The number of separations rose 65k to 5.261 million, down about 300k over the past year. Within separations, the number of quits rose 228k to 3.326 million, although still remains on a downward trend.

• Jobless Claims: The number of unemployment claims the week ended November 30 was 224,000, an increase of 9k from the prior week with the four-week average up slightly to 218,250. The number of continuing claims was 1.871 million, down 25k from the prior week with the four-week average down slightly to 1.84 million.

• ADP Payrolls: ADP reported it saw 146,000 new payrolls added in November, a little below expectations, while October’s 233,000 increase was revised down to a 184,000 increase. It saw a large increase in employment in large size employers, while industry data was mixed – manufacturing saw a decline, financial and leisure and hospitality were weak, while health services and construction was stronger.

• Employment Situation:The November labor report was expected to see a rebound in jobs growth, due to weather/hurricane and strike related impacts from October, and it looks like that is exactly what happened. The DOL said the US saw payroll growth of 227,000 in the month, above consensus estimates of 210,000. There was solid job growth in health care, leisure and hospitality, government, and transportation, with a loss of jobs in retail. The prior two months saw a net revision of an additional 44,000 jobs, reversing a trend that saw consistent and significant downward revisions. On the household survey, the labor force fell by 193,000 with the participation rate down another 0.1% to 62.5% which is down from 62.8% a year ago (the highest since pre-pandemic). The number of employed fell 355,000 while the number unemployed increased 161,000, which resulted in an increase to the unemployment rate by 0.1% to 4.2%. Meanwhile, wages continue to run a little hotter, rising 0.4% in the month and up 4.0% over the past year.

• PMI Manufacturing Index: The PMI manufacturing index was 49.7 for November, up from 48.8 last month, but suggesting manufacturing activity is still contracting, although at a small rate. The report noted a decline in new orders and lower output, but the improvement in the headline number was due to a rebound in optimism that led to higher employment. In addition, the pace of input prices weakened further and the lowest in a year.

• ISM Manufacturing Index: The ISM manufacturing index was 48.4 for November, an improvement of almost two points from October. This report noted a growth in new orders for the first time in eight months but demand that continues to be weak and production and employment that were both weaker while delivery times were shorter. Only three of the 18 major industries reported growth in the month, 11 reported a contraction in activity, while four reported no change.

• Construction Spending: Total construction spending rose 0.4% in October, above the expectations of a 0.2% increase and picking up pace from the 0.1% increase in September. Spending was driven by residential construction which bounced back with a 1.5% increase in the month after falling in September, while nonresidential construction spend fell 0.4%. Construction spending has increased 5.0% over the past 12 months.

• ISM Non-manufacturing (services) Index: The ISM services index was 52.1 for November, a pullback from 56.0 from October but still above the breakeven level of 50 and suggesting small growth in activity in the month. The report noted the decrease in the index was due to lower business activity, new orders, employment, and deliveries. Election and tariffs were mentioned often in the month which led to more cautious outlooks.

• Trade Data: The trade deficit narrowed by a solid amount in October, coming in at $73.8 billion which is a $10 billion smaller deficit than from September. The smaller deficit month-over-month (which is still relatively high) was due to a 1.6%, or $4.3 billion, decline in exports and a 4.0%, or $14.3 billion, decline in imports. Year-to-date the deficit has increased 12.3%, or $80.7 billion, from the same period a year ago. The volume of trade, which is a better indicator on trade activity, saw a substantial decline of $18.5 billion in the month but comes after a large increase the month prior, which may be indications companies attempted to get ahead of potential tariffs. Trade volume was still $19.4 billion higher versus a year ago, an increase of 3.3%.

• Consumer Sentiment Index: The University of Michigan’s consumer sentiment index was 74.0, the best since April, and improving from 71.8 last month. The current conditions index rose to 77.7, also the best since April. However, the expectations index fell to 71.6, down from 76.9 last month, for the lowest since July. The one-year ahead inflation expectation rose to 2.9% from 2.6% last month, while the longer-term inflation expectation was 3.1%.

Company News

• Trump Says No On US Steel Deal: Trump said in a Truth Media post that he is “totally against the once great and powerful U.S. Steel being bought by a foreign company”, once again stating he would block Japan’s Nippon Steel acquisition of US Steel. Instead, he said he would impose tariffs that would help US Steel.

• Super Micro Sees No Restatement of Financials Needed: Shares of Super Micro Computer moved higher after the company said an independent special committee found no evidence of misconduct by the board or audit committee and no restatement of financials are expected based on the review. The review did find some lapses in processes and the company said it will appoint new financial, compliance, and general counsel positions.

• AT&T’s New Forecast: AT&T shares moved higher after it provided short and medium term forecasts and a multi-year strategic plan before its Investor Day event, providing current year earnings slightly higher than consensus estimates and saying it expects double-digit percentage growth in EPS and free cash flow of more than $18 billion by 2027, citing growth in its 5G and fiber subscriber growth.

• Intel’s CEO Retires: Intel said its CEO Pat Gelsinger will retire effective December 1, with reports later coming out that Gelsinger had been pressured to retire, with Bloomberg reporting he was given two options by the board: to retire or be removed. The board reportedly lost confidence in Gelsinger’s plan to turn the company around and was made worse after he met with the board last week.

• OpenAI Discusses Ads On Products: OpenAI is discussing plans to bring advertising to its products, seeking new ways of generating revenues, according its CFO in an interview with the Financial Times. It has hired advertising talent from rivals and said the rapid growth in its business is opening significant opportunities within the existing business model.

• GM to Take Record Charge Down: GM said it will record a non-cash charge of $5 billion on its joint venture with China as part of restructuring actions from ongoing losses in the division.

• UnitedHealth’s New Forecast: UnitedHealth provided new 2025 forecast ahead of its annual investor conference taking place Wednesday, now expecting 2025 revenues well ahead of estimates, but earnings that were slightly lower than estimates. However, it received sad news the morning of its event that the CEO of its insurance arm UnitedHealthCare, Brian Thompson, was fatally shot as he was leaving his hotel for the annual conference, leading the company to cancel the event.

• Upbeat Travel Commentary: Airline stocks had a strong day on Thursday after Southwest and American gave upbeat forecasts for the fourth quarter, citing stronger travel trends and better efficiency.

Other News:

• SEC Nomination: Trump has nominated former SEC commissioner Paul Atkins to be the next Chair of the Securities and Exchange Commission. Atkins is considered pro-crypto and the news helped push the price of Bitcoin to over $100,000 for the first time, now nearly 50% higher since the election.

• Export Controls Widen: Biden has introduced a series of new export controls in effort to further restrict China’s ability to build advanced semiconductors that are critical to military technologies and hi-tech weapons by imposing export restrictions on 24 additional types of chipmaking equipment and three categories of software that is essential for developing semiconductors. In a retaliatory decision, China said it would ban exports of gallium, germanium, and antimony, all important materials used in semiconductors.

• Ceasefire in Jeopardy: There are rising concerns the ceasefire between Israel and Hezbollah is in jeopardy after recent reports both sides are accusing each other of violating the ceasefire agreement in Lebanon.

• OPEC Extends Oil Production Cuts: OPEC was scheduled to meet December 1 but delayed the meeting to December 5 where it made an agreement to postpone its previously agreed on plan to roll back its oil production cuts that have been in place for nearly three years. The delay in its plan will last through March and it plans to restore its full oil production quotas over 18 months, by September 2026. Leading up to the meeting, there were reports OPEC was worried about oil prices and the potential they would continue to fall which led to the decision to delay production increases. The prior expectation was the cuts would expire at the end of the month and 180,000 barrels per day of new production would return to the market. OPEC, which has cut production a total of nearly 6 million barrels per day (roughly 6% of global demand) since 2022, has been considering unwinding production cuts all year.

• French PM Faced with No Confidence Vote: French Prime Minister Michel Barnier was faced with a no confidence vote which resulted in a collapse of his government after he used a constitutional mechanism to force through an unpopular budget. We saw the far-left party and far-right party come together to support the motion which would result in the shortest tenure since France’s First Republic was founded in 1958.

• Turmoil in South Korea: Meanwhile in South Korea, its president Yoon Suk Yeol declared martial law over the accusation the opposition party is holding the parliamentary process hostage and the party made the country vulnerable to North Korea. There was major disapproval to the declaration of martial law with the President’s party and the opposition party coming together with the National Assembly unanimously voting against the measure, forcing the order to be lifted. The opposition is now starting a motion to impeach the President. The Bank of Korea intervened, saying this morning it will provide sufficient liquidity until markets stabilize.

• Powell’s Comments: Fed Chairman Powell spoke at an event last week, sounding more cautious when it comes to future rate cuts and how to quickly proceed going forward, adding there has continued to be solid economic growth but disinflation has stalled. Powell also answered questions on tariffs, where Powell said there is so much we do not know yet and policy cannot be formulated based on that.

WFG News

WFG Closed December 24 & 25

Please note that Wentz Financial Group will be closed Tuesday December 24th and Wednesday December 25th. We will be back open Thursday morning the 26th.