Money moves, but doesn't panic
It started strong but ended badly. That's the best way to describe the trading activity of the past week.
Indeed, everything seemed to start off well. Investor demand clearly grew during the first half of the week and reached peak values by midweek. On Wednesday, as we know, the U.S. Federal Reserve's Federal Open Market Committee predictably cut the key U.S. lending rate by another quarter point at its regular meeting. It seemed this was a time to celebrate. But the joy was short-lived. Yes, the Dow Jones and S&P 500 indexes set fresh all-time highs, but investors couldn't sustain the momentum. The culprits were the mixed quarterly reports from two tech giants, Oracle (ORCL) and Broadcom (AVGO), as well as market participants' concerns about the position of some Fed members who opposed further monetary policy easing due to excessively high inflation rates.
As for the tech giants, Oracle lost more than 17% in the two days following its earnings release after the company's weak financial forecast for cloud software, while Broadcom shares plummeted after the chipmaker warned of declining future margins, which in turn sparked new investor concerns about the profitability of growing investments in the AI sector.
As a result, the final days passed on a downbeat note, and no one was talking about a Santa rally anymore, even though it had been dreamed about at the very beginning of the week. Although the most conservative blue-chip index, the Dow Jones (DJIA-30), had enough staying power and finished the week up 1.05%. However, the other two leading U.S. market indexes, the S&P 500 and NASDAQ Composite, were less fortunate and lost 0.63% and 1.62%, respectively, for the week.
The ITS family indexes also ended the week in the red. But while the losses of the global stock index ITS World (ITSW) were not so substantial – only 0.83% – thanks to good geographic diversification, the Islamic securities index ITS Shariah (ITSS), which includes a large number of U.S. Big Tech stocks, suffered more, with a 2.31% loss.
However, this isn't particularly surprising, since the main trend of the week was precisely investors shifting funds from tech company stocks to other, less volatile sectors. As one economist aptly put it: money moves, it doesn't panic. This is very clearly visible in the sectoral breakdown. While industries directly related to AI, such as communication services and technology, suffered substantial losses (-2.77% and -2.19%, respectively), commodity (+3.13%), financial (+2.16%) and industrial (+1.28%) company stocks were on the opposite end of the spectrum, gaining significantly in value. Thus, we see that investors are currently concerned not so much with further market growth as with capital preservation. They're also looking to move away from risks associated with the revaluation of investments in the AI sector.
Market expectations for December 15
This week will likely be the most serious and intense in the closing period before the New Year. The main events will undoubtedly be related to the release of macroeconomic data. Finally! After the U.S. government shutdown, this will be the first truly current data (for November) that will become available to a wide range of market participants.
Labor Department reports on nonfarm payrolls, consumer inflation and retail sales data are expected to be released this week and may provide deeper insight into the state of the economy after the October government shutdown prevented investors and policymakers from monitoring the current economic situation.
Additionally, there will be several important corporate earnings releases. The greatest interest will naturally focus on another tech sector giant: leading microchip manufacturer Micron Technology (MU). After the negativity surrounding the Oracle and Broadcom earnings releases, many hope that Micron's data will be more encouraging and enable somewhat discouraged investors to regain confidence.
Nike (NKE) earnings will also be very interesting to watch. The company knows how to present itself and usually pleases market participants with its successes. This is especially likely right now, when the pre-Christmas and pre-New Year sales season is in full swing, the most lucrative time for retailers.
As for the current moment, Monday morning presents a mixed picture. While European and American markets are slightly in the green, Asian markets are entirely in the red. However, Asian markets typically lag behind, so they're likely working through Friday's negativity right now.
There's no clear answer to what the current sentiment is. Everything will be decided as the week progresses with the release of the macroeconomic data and corporate earnings. This means the main events will unfold in the second half of the week, with Wednesday and Thursday likely being the most important trading days. The market awaits these days with hopes for more positive news heading into the Christmas and New Year holidays.