There was a noticeable shift in sectors this week. Does this represent a change of sentiment or a broad shift across asset classes?
Monday
S&P 500 0.16% | NASDAQ 0.26%
S&P500 and Nasdaq set record highs in the wake of a Department of Justice (DOJ) investigation into the Federal Reserve. Banks stocks were most downwardly impacted following an announcement of an interest rate cap for credit card borrowers.
Tuesday
S&P 500 0.19% | NASDAQ 0.10%
Markets retreated from yesterday’s highs as inflation data came in at expectations. Current policy reflects a hawkish lean which is designed to prevent price re-inflation for 2026. Financial stocks were again a noticeable drag on indexes.
Wednesday
S&P 500 0.53% | NASDAQ 1.00%
Nasdaq fell at the midway point this week on fears of tension with Iran and other mixed quarterly earnings. The sector rotation became more evident as flows moved from Tech into Industrials and Energy. Producer Prices rose higher than expected in November.
Thursday
S&P 500 0.26% | NASDAQ 0.25%
Markets closed higher, stopping the two-day losing streak for the broad markets. A surge occurred, however, within Small Cap stocks (Russell 2000), which is an indication of lower future borrowing costs. The bullish sentiment has created a buy signal in undervalued companies but comes with inherent risk to the downside. These shifts into specific asset classes do not represent an investment recommendation.
Friday
S&P 500 0.06% | NASDAQ 0.06%
Friday was flat for the large company indexes, but another record high for small companies. Earnings will be digested in the coming weeks, and tension internationally will continue to impact energy prices. The energy index led sectors this week as U.S. oil policy remains unknown.
Conclusion
S&P 500 0.38% | NASDAQ 0.66%
Markets tried to maintain a bullish trajectory this week but ultimately fell lower. Federal Reserve Independence became front and center after the announcement the Department of Justice would investigate the rate setting body. The administration’s focus on the economic agenda has not been hidden but has been quiet lately, until early this week. The President has proposed helping borrowers with high-interest rate credit cards be granted a reprieve at least for a year. This helps household liabilities and, in theory, could free up cash flow for consumers. However, credit card companies could close cards for those with less than good credit history, posing additional risks. It is too early to tell if there is widespread opposition at the government level to this notion or not. This week showed a clear rotation within sectors – losers were notable in Materials and Communication Stocks. The winners favored Energy and Industrials with current geopolitical events still uncertain.
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