U.S. stocks closed last week on a strong note after a lower-than-expected rise in the consumer price index led investors to lower their expectations for peak interest rates. The midterm elections failed to provide immediate answers about congressional control. The focus shifts to the consumer this week as leading retailers report earnings. Data on retail sales and the housing industry are due too.
The Labor Department reported last Thursday that the annual change in the consumer price index (CPI) fell below 8% for the first time in October after January. The CPI rose 0.4% in October to print a 7.7% increase for the year compared to 8.2% in September.
Excluding food and energy costs, the core CPI rose 0.3% for the month and 6.3% for the year, trailing economists’ forecasts for increases of 0.5% and 6.5%, respectively.
Earlier last week, stocks rose ahead of Tuesday’s midterm elections on expectations the Republicans would make significant inroads into the balance of power in Congress.
The Republican wave, however, failed to materialize, and certain races were too close to call. Stocks fell sharply on Wednesday as the reality of a drawn-out midterm election outcome sunk in.
The week was a bad one for cryptocurrencies. The FTX crypto exchange declared bankruptcy after its contemplated merger with its larger rival, Binance, failed to move forward. Cryptocurrency prices fell sharply.
The sharp rally in stock and bond prices after Thursday’s CPI report helped both assets close the week with gains. Technology stocks, battered by rising interest rates in 2022, led the way. The U.S. dollar fell in value versus foreign currencies.
For the week ending November 11, the S&P 500 (SPY) rose 5.9%. All of the 11 sectors advanced.
Information technology (XLK) gained the most, while utilities (XLU) gained the least.
The S&P 500’s top 10 winners included the following:
1. Information Technology Sector
- SolarEdge Technologies (SEDG) +32% – The week’s top performer in the S&P 500.
2. Financial Sector
- T. Rowe Price (TROW) +30%
- Invesco (IVZ) +26%
- PayPal (PYPL) +21%
- MarketAxess (MKTX) +21%
3. Communication Services Sector
- DISH Network (DISH) +27%
- Meta Platforms (META) +24%
4. Consumer Discretionary Sector
- Caesars Entertainment (CZR) +22%
- Mohawk Industries (MHK) +22%
5. Health Care Sector
- Align Technology (ALGN) +21%
Top ETFs for the week
The following ETF themes worked well: cloud computing, semiconductors, gold mining, Korea, and home building. The top ETFs for the week include:
- WisdomTree Cloud Computing (WCLD) 15.9%
- VanEck Semiconductor ETF (SMH) 15.4%
- VanEck Gold Miners ETF (GDX) 13.4%
- iShares MSCI South Korea ETF (EWY) 12.6%
- SPDR S&P Homebuilders ETF (XHB) 12.1%
Will Retailers Keep the Rally Going?
* Leading retailers are in the spotlight this week. Walmart, Target, Home Depot, Lowe’s, and several specialty retailers report earnings. The earnings calendar includes reports from three large technology companies: Applied Materials, Cisco Systems, and NVIDIA.
* The Census Bureau reports October retail sales, providing a consumer pulse. Economists surveyed by Dow Jones expect retail sales to rise by 1.2% in October after remaining flat in September.
* Investors will get updates on the state of the housing market, where demand for homes has plummeted due to surging mortgage rates. The U.S. Census Bureau releases data on October building permits and housing starts. Data on existing home sales in October are due from the National Association of Realtors. Economists expect all housing industry measures to decline.
* The Conference Board updates its Leading Economic Index (LEI) for the U.S. Economists expect the LEI to fall 0.4% in October, matching the September tally. The impact of the LEI reading on stock prices has increased recently as recession fears have become a top-of-mind issue for investors. Continued declines in the LEI can escalate such worries.
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