Market Overview
The S&P 500 Index saw a slight uptick on Friday, with the Dow Jones Industrial Average rising by 0.13% and the Nasdaq 100 Index closing down by 0.28%. Meanwhile, December E-mini S&P futures increased by 0.14%, whereas December E-mini NASDAQ futures dipped by 0.22%.
U.S. stock indexes initially dipped but managed to recover by the afternoon, resulting in a mixed close. This rebound was prompted when Senate Democrats moderated their demands regarding the government shutdown by pushing for a one-year extension of expired health care subsidies. However, Republicans dismissed the proposal, asserting that discussions around health care tax credits could only happen if the government was reopened. The simple fact that negotiations were taking place seemed to uplift investor sentiment, contributing to a bounce in stock prices.
On Friday, stocks had started the day lower, with major indexes hitting two-week lows, largely influenced by disappointing performances from chip makers. Economic worries also loomed after a report indicated that U.S. companies had announced substantial layoffs in October—amounting to the largest number in over two decades. Additionally, the University of Michigan reported a drop in the November U.S. Consumer Confidence Index, which fell to its lowest point in around three and a half years.
Comments from Fed Vice Chairman Philip Jefferson were slightly more hawkish, indicating that interest rates still have a notable “limiting” effect on the economy. He mentioned that it makes sense to approach rate cuts with caution as they near neutral levels.
The University of Michigan’s Consumer Confidence Index for November decreased by 3.3 points to 50.3, falling short of the anticipated 53.0.
Inflation expectations revealed mixed signals. The University of Michigan’s one-year inflation expectations unexpectedly increased to 4.7%, exceeding the unchanged prediction of 4.6%. Conversely, the 5-10 year inflation outlook slowed to 3.6%, under the predicted 3.8% year-over-year increase.
In September, U.S. consumer credit rose by $13.093 billion, surpassing expectations of $10.23 billion.
Trade data from China was less favorable than anticipated, impacting global growth outlooks. October saw Chinese exports unexpectedly drop by 1.1%, contrary to the expected increase of 2.9%, marking the first significant decline in eight months. Meanwhile, imports went up by 1.0%, but this was also below expectations of a 2.7% rise.
The ongoing U.S. government shutdown is now in its sixth week—the longest in history—and is weighing heavily on market sentiment and the economy, delaying essential government reports.
The market is currently pricing in a 66% likelihood of a 25 basis point rate cut at the upcoming FOMC meeting scheduled for December 9-10.
On another note, the U.S. Supreme Court expressed skepticism regarding the legality of President Trump’s reciprocal tariffs. Chief Justice Roberts and others questioned the application of the Emergency Powers Act for tariff imposition, contending that this should fall under Congress’s authority. A decision from the Supreme Court is anticipated late this year or early into 2026, with lower courts having previously found Trump’s tariffs to be illegal. A ruling in favor of the lower courts could mean the government might need to repay more than $80 billion collected from these tariffs.
The corporate earnings season for the third quarter showed strength, with 136 S&P 500 companies having reported. A notable 81% exceeded expectations, marking the best quarter since 2021. That said, profits are projected to rise only 7.2% year-over-year, the smallest increase in two years.
International markets experienced declines, with the Euro Stoxx 50 hitting a three-week low, down by 0.80%. The Shanghai Composite Index also fell, closing 0.25% lower, while Japan’s Nikkei Stock Average dropped 1.19%.
Interest Rates
On Friday, the December 10-year T-note closed slightly higher, with the yield rising by 0.4 basis points to 4.087%. The initial stock dip appeared to drive demand for safe-haven government bonds, particularly after the consumer confidence report from the University of Michigan indicated a concerning decline.
However, gains in T-notes were limited by Jefferson’s hawkish remarks suggesting a slow approach to further rate cuts. The ongoing government shutdown also contributes to the demand for T-notes, as it may lead to job losses and a weaker economy, potentially prompting the Fed to continue cutting rates.
European bond yields saw an increase on Friday, with German 10-year federal bonds hitting a four-week high, while UK 10-year yields also rose.
Germany’s trade data surpassed expectations, with exports growing by 1.4% month-on-month in September, marking a significant increase. Imports also rose, beating forecasts and marking a rebound.
In a statement, an ECB Executive Director acknowledged that some risks to the eurozone economy have eased.
The market indicates a 4% chance of a 25 basis point rate cut by the ECB at its December 18th meeting.
Company Highlights
Globus Medical stock jumped by 35% following a positive earnings report for the third quarter that exceeded estimates.
Expedia Group reported adjusted earnings significantly above expectations, resulting in a 17% rise in its stock.
Akamai Technologies and Affirm Holdings also saw notable increases following positive earnings projections, while several other companies, like News Corp and Monster Beverage, reported results that beat analyst expectations.
Conversely, several tech firms and related stocks faced declines, with Microchip Technology experiencing notable losses due to downgraded sales forecasts. Take-Two Interactive also suffered after delaying a highly anticipated video game, leading to an over 8% drop.
European markets experienced declines, while corporate performances highlighted a mix of strong earnings and disappointing forecasts within various sectors.
