It was a roller-coaster week for stocks… maybe a hint of things to come? From mine, in the very short term, markets were deeply over-sold looking at its Relative Strength Index (RSI). Often when you see the RSI below a value of 30 – buying isn’t too far away. The last time stocks sank ~10% over a few days was 2020. However, in the absence of any crisis, generally this will see both short covering and/or bargain hunting. The bigger question is whether stocks can follow through? I don’t think we draw that conclusion yet…
Consumer Confidence
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Consumer Resilience to be Tested
The post-pandemic resilience of the American consumer continues to show strength. October’s retail sales data indicates continued spending, especially as the holiday season approaches. This is important, as consumption comprises 70% of all U.S. GDP. Overall US retail sales rose by 0.4% from the previous month, seasonally adjusted, and increased 2.8% year-over-year unadjusted. Good news. However, the question for today is what (if any) will policy changes impact spending behavior? For example, what could be the impact of tariffs? What if we see less government handouts? How will that impact lower-income households?
Is the Market About to Broaden Beyond Tech?
Has the market finally started to broaden beyond tech? Whilst it’s still too early to answer – there were signs of life this week in sectors which have failed to work this year. By way of example, the Russell 2000 and the Equal Weighted Index caught a bid – as the market started to price in at least one rate cut before the end of the year. And that makes sense. Companies that depend on leverage to supplement cash flows will stand to benefit more from rates cuts (vs their larger cap peers – who profit from higher rates due to cash hoards)