Macrosynthesis
TLDR
- Fed cuts rates, inflation persists
- Consumer spending grows
- Congress avoids shutdown, debates ahead
- Novo Nordisk drops on trial miss
- FedEx rises on spinoff news
Fed Cuts Rates but Persistent Inflation Clouds Outlook
The Federal Reserve concluded 2024 with its third rate cut of the year, reducing the benchmark interest rate to 4.4%. However, November’s inflation data reveals lingering challenges for policymakers. The Consumer Price Index (CPI) increased 0.3% month-over-month and 2.7% year-over-year, marking consecutive inflation accelerations driven by elevated shelter and food costs. Similarly, the Producer Price Index (PPI) rose 0.4% monthly and 3% annually, its highest growth in nearly two years, highlighting pressures from rising wholesale prices.
While the Fed projects inflation to moderate to 2.5% by the end of 2025, this remains above its 2% target, complicating the pace of further rate cuts. Policymakers reduced their forecast to only two rate reductions in 2025. Chair Powell stressed a cautious approach, citing uneven disinflationary progress and potential inflationary risks from incoming Trump administration policies, which could stimulate growth but reignite price pressures.
Markets knee-jerked sharply to the Fed’s reduced projections.
The S&P 500 dropped 3%, and Treasury yields surged, reflecting investor concerns over persistently high inflation and slower monetary easing. On Friday, the selloff was saved by another inflation report that was better than expected. The core PCE - the Fed's preferred inflationary measure - came in at 2.4% year over year growth. Markets rebounded up Friday, and what's interesting is: had the Fed meeting taken place after the PCE report arrived, it's possible Powell would have made softer statements on the need to be cautious amidst rising inflation. If that happened, the selloff would have been less pronounced.
The difference in reports is causing some market analysts to speculate that the selloff has created a new buying opportunity. Our take is that the pullback is a short term opportunity but the S&P 500 is extremely expensive relative to historical norms. Stock picking with a mind on valuations is essential.
Consumer Spending Remains Robust Amid Inflationary Pressures
Even as inflation challenges persist, U.S. consumers continued to spend at a steady pace in November, with personal spending rising 0.4% for the second consecutive month. This resilience reflects sharp rebounds in goods purchases, particularly durable goods, which saw a notable 1.8% increase. However, spending on services showed signs of slowing, growing just 0.2%, down significantly from October's pace.
Despite strong spending, inflationary pressures within consumer expenditures appeared to ease slightly. The PCE price index rose just 0.1% month-over-month, the smallest increase in three months, while core PCE inflation, a critical Fed measure, also posted a minimal 0.1% gain. On an annual basis, headline PCE inflation edged up to 2.4%, while core PCE inflation held steady at 2.8%, falling short of market expectations.
The spending data reflects a complex economic environment. Consumer demand remains a cornerstone of economic strength but poses risks of sustaining inflation above the Fed’s 2% target. This dynamic, coupled with the Fed’s upward revision of 2025 PCE inflation forecasts, highlights the ongoing tension between supporting economic growth and addressing entrenched price pressures.
Congress Narrowly Avoids Shutdown After Tense Negotiations
In a dramatic but all too familiar last-minute effort to prevent a government shutdown, Congress passed a temporary funding bill early Saturday, extending federal operations through March 2025. The bipartisan measure excluded President-elect Donald Trump’s push for a debt ceiling increase, an omission that significantly shaped the outcome after intense negotiations.
House Speaker Mike Johnson managed to rally support in the House, securing a decisive 366-34 vote despite opposition from conservative factions within his party. The Senate followed with an 85-11 vote, avoiding disruptions to federal operations. The bill includes $100 billion for disaster relief and $10 billion for farmers but delays addressing the debt ceiling until next year, setting up contentious debates as the GOP prepares to take full control of Congress and the White House.
Scrutiny on Biden’s Cognitive Health Raises Questions of Accountability
A recent Wall Street Journal investigation has brought new attention to concerns about President Joe Biden's cognitive health, revealing that White House staff and cabinet members worked to obscure his mental decline throughout his presidency. The report details instances where Biden was shielded from press interactions and cabinet meetings were minimized, particularly during key crises such as the withdrawal from Afghanistan.
The findings have led to a broader conversation about the 25th amendment's reliance on the Vice President as well as media accountability, with some commentators, including former CNN journalist Chris Cillizza, admitting to hesitancy in addressing the issue earlier. While some attribute this to fears of "age shaming," critics suggest that the reluctance to scrutinize Biden’s health stems from a broader tendency to avoid narratives that could challenge political alignments.
Mar-a-Lago is the New Camp David & Lobbying Hot Spot
Following President-elect Donald Trump's recent victory, numerous CEOs, particularly from the technology sector, have been actively engaging with him. Leaders from companies such as Amazon, Apple, Google, Meta, and OpenAI have either met with Trump or announced substantial contributions to his inauguration fund. For instance, Apple CEO Tim Cook dined with Trump at Mar-a-Lago, marking their first meeting since the election. Similarly, Meta CEO Mark Zuckerberg and Google CEO Sundar Pichai have held discussions with the President-elect. Additionally, Amazon and OpenAI's Sam Altman have each pledged $1 million to support Trump's inauguration. This surge in engagement reflects a shift among tech leaders, who are seeking to align with the incoming administration's pro-business stance, anticipating favorable policies such as the continuation of the 21% corporate tax rate and deregulation efforts that could benefit their operations.
Consumer Discretionary Stocks Rise Heading Into Christmas Season
Last week, U.S. indices experienced declines, with the Dow dropping 2.3%, the S&P 500 falling 2%, and the Nasdaq down 1.8%. The small-cap focused Russell 2000 saw the steepest decline, losing 4.5% while the CBOE Volatility Index surged 33%, reflecting increased market uncertainty.
Across S&P 500 sectors, energy led the declines, down 5.6%, followed by Real Estate (-5%) and Materials (-4.2%). Consumer Staples, Financials, and Consumer Discretionary all fell around 2-2.6%, while Information Technology had the smallest drop at 0.7%. Utilities and Telecom also posted losses of 1.6% and 2.2%, respectively, rounding out a challenging week across the board.
Treasury yields surged after the Federal Reserve's rate cut, signaling concerns over slower easing in 2025. The 10-year Treasury yield climbed to 4.52%, its highest since May, sending bond prices lower. Long-duration assets bore the brunt, with the iShares 20+ Year Treasury Bond ETF (TLT) dropping over 1%, deepening its year-to-date loss to 6.1%.
The Week Ahead
This week, Consumer Confidence is expected to rise, while Durable Goods Orders may decline. New Home Sales are projected to show strong growth. Markets are closed Wednesday for Christmas. Later in the week, Jobless Claims are forecast at 225,000, with the Trade Balance likely reflecting a $98.3 billion deficit alongside modest inventory gains.
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Natural Gas
+4.58% (1D Chg)
+14.27% (1W Chg)
Gold
-1.25% (1D Chg)
+3.13% (1M Chg)
Cocoa
+17.09% (1M Chg)
+168.53% (YTD Chg)
Eggs
-10.72% (1M Chg)
+74.89% (YTD Chg)
Company News
Top LevelFields AI Alerts this Week
This week, LevelFields AI alerts spotlighted significant market movements. CGTX led the gains with a 27.5% one-day surge after positive phase two results for its Alzheimer’s therapy. Close behind, NXPL soared 25% in a single day, fueled by a 15.5% stock buyback announcement. APLT also saw a 12% increase following news of its CEO's departure.
On the downside, HYZN fell over 40% after announcing mass layoffs, while GOEV dropped 32% for the same reason, marking them as the week’s biggest losers.
Novo Nordisk Faces Setback as Shares Plunge 20%
Novo Nordisk shares dropped 20% after disappointing trial results for its experimental weight-loss drug, CagriSema. The late-stage trial showed a 22.7% weight reduction, falling short of the 25% previously anticipated. Despite outperforming Wegovy in weight reduction, the results dampened expectations for the drug as a next-generation obesity treatment. Meanwhile, competitor Eli Lilly (LLY) saw a 5% rise in its stock, bolstered by its superior performance in earlier head-to-head trials.
The FDA also announced the shortage of GLP1s that allowed generic knock-off versions of the drug to be sold by telehealth providers like Hims & Hers (HIMS) is now over. This means the companies will no longer be able to offer them come the end of Q1 2025. HIMS stock, which attributes 1/3 of its 77% revenue growth to generic GLP1s sold off 12% on the news. The stock was already down after Amazon announced the launch of generic hair loss and ED drugs that will compete with Hims & Hers.
FedEx Rises Amid Freight Spinoff and Privatization Prospects
FedEx shares climbed 8% after announcing plans to spin off its freight trucking division, a move expected to unlock $20 billion in shareholder value. The restructuring aims to streamline operations by merging its Express and Ground units.
Adding to its momentum, FedEx stands to benefit from President-elect Donald Trump’s proposal to privatize the U.S. Postal Service. The potential policy could increase market opportunities for private delivery giants like FedEx and UPS, particularly following FedEx’s loss of a major USPS contract earlier this year.
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