The stock market had its struggles last week dealing with rising interest rates, fading rate cut expectations, and valuation angst. One can make a case that politics played a part, too, as inflation concerns, borne out of tariff proposals, and deficit concerns, borne out of tax cut proposals, had a hand in market rates going up and expectations for the number of Fed rate cuts going down.
Market participants will be grappling with the same issues this week in the midst of hearing earnings results from NVIDIA (NVDA) after Wednesday’s close and earnings results from a host of retailers, including Walmart (WMT), Lowe’s (LOW), Target (TGT), TJX Cos. (TJX), and The Gap (GAP), throughout the week.
The early approach is mixed as rates remain elevated and the mega-cap stocks themselves are mixed. The geopolitical scene has gotten murkier, too, with The New York Times reporting that President Biden approved Ukraine’s use of U.S. long-range missiles in Russia.
Currently, the S&P 500 futures are up four points and are trading fractionally above fair value, the Nasdaq 100 futures are up 67 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down 41 points and are trading 0.1% below fair value.
The 10-yr note yield, sitting at 4.46%, is again pushing 4.50%, which has been an area associated with multiple compression over the past 18 months or so. The 2-yr note yield is up to 4.30%.
The elevated rates have tempered buy-the-dip interest in the stock market along perhaps with the news that President-elect Trump has tapped Brendan Carr, someone who has been a critic of large technology companies, to be FCC Chair. Chris Wright, CEO of Liberty Energy (LBRT), has been nominated for Secretary of Energy.
The nominee for Treasury Secretary has yet to be decided, but Howard Lutnick, who won Elon Musk’s endorsement, Scott Bessent, Kevin Warsh, and Mark Rowan are reportedly under consideration. The FT has reported that President-elect Trump wants assurances from any incoming Treasury Secretary that he will impose sweeping tariffs.
What that ultimately looks like is a point of uncertainty for the stock market, which is trying to see the best of the tariff situation, yet it is the Treasury market that is shaping up to be the arbiter of the incoming administration’s policies.
The read-through will be seen in the behavior of Treasury yields, which at this point are operating in an agitated state.
That isn’t the case for Tesla (TSLA), which has been surging since the election. It is up another 6.2% today on a Bloomberg report that the Trump administration wants to ease regulations on self-driving cars. Tesla is a big reason why the Nasdaq 100 futures are exhibiting relative strength, helping to offset some of the weakness seen in NVIDIA (NVDA), which is down 2.3% on a separate report from The Information that suggests customers are worried about an overheating snag in its AI chips.
The real snag for the stock market now, however, is rising interest rates.
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Originally Posted November 18, 2024 – Market hits a snag with interest rates rising
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