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As the Fed prepares to cut rates and investors brace for fresh retail data, a stubbornly resilient consumer number could stiffen inflation’s spine and force a sudden reversal in how we view interest rates, currencies, and equity leadership.
This edition reveals why next week’s events may require a quick recalibration of strategies – if you’re paying attention.
Market Overview
After a choppy week marked by persistent inflation signals and rising expectations for another rate cut, the major U.S. indices posted divergent performances.
The Nasdaq 100 (NDX) managed a modest gain on the back of a few select high-growth tech names – some spurred by optimism around artificial intelligence – while the S&P 500 (SPX) hovered slightly below flat, weighed down by a broader base of declining stocks.
The Dow Jones (INDU) struggled under value pressure, posting its longest losing streak in nearly five years, and the small-cap Russell 2000 (RTY) suffered the deepest losses, underscoring the market’s reluctance to embrace riskier corners.
This pattern of narrow leadership and uneven returns is tied to several crosscurrents. Investors are eyeing the Fed’s upcoming decision warily after fresh consumer and producer price data reinforced concerns about stubborn inflation.
Meanwhile, central banks in Europe and Switzerland have implemented fresh rate cuts.
Against this backdrop, mega-cap tech and AI-centric stocks appear to be a safe haven for growth-oriented optimism, while cyclical and smaller-cap segments bear the brunt of expected macro uncertainty.
Last Week’s Highlights
- Fed Rate Cut Odds Surge: Futures placed a 97% probability on a December Fed cut, up sharply from 86%.
- U.S. Inflation Stays Sticky: Core CPI held at 3.3% YoY in November, with headline inflation at 2.7% and PPI hitting 3.0%.
- U.S. Labor Slows Down: Jobless claims jumped to 242,000, a two-month high, suggesting a cooling in the workforce.
- Treasury Yields Rise: U.S. Treasury yields climbed across most of the curve, driven by reemerging inflationary pressures.
- Canada Makes a Bold Move: The Bank of Canada delivered a hefty 50 bps rate cut to 3.25%, reflecting softer domestic momentum.
- ECB & SNB Slash Rates: The ECB trimmed its deposit rate to 3.0%, while the SNB surprised with a 50 bps cut.
- Darker Eurozone Outlook: ECB projections lowered growth and inflation forecasts, reflecting persistent headwinds for Europe.
- UK Takes a Step Back: UK GDP contracted 0.1% in October, marking a second straight monthly decline and raising fresh growth concerns.
- China’s Weak Price Data: CPI rose just 0.2% YoY, missing forecasts, as deflationary pressures persisted. Markets spiked after weekend stimulus announcements but retraced as doubts returned.
- Australia Defies Slump Fears: Surprising job gains of 35,600 and a drop in unemployment to 3.9% underscored resilient labor conditions.
- AI Catalyst at Broadcom: Broadcom soared 24% to $1 trillion in market cap after robust earnings and a bullish AI outlook.
Week Ahead & Implications
FOMC Decision & US Retail Sales: Inflation Holds Its Ground
The Fed is expected to cut rates by 25bp, but all eyes will be on Powell’s tone and the Fed’s outlook. If retail sales for November come in strong, it will show the US consumer is still spending, which keeps inflation stubbornly high.
This would make it harder for the Fed to cut rates aggressively next year. While there may be talk of long-term interest rates falling as the graph below suggests, strong consumer data could keep them steady for now.
However, short-term bonds are a smarter choice since inflation risks remain.
In the stock market, focus on steady-growth sectors like high-quality tech and consumer companies that benefit from strong spending trends. Meanwhile, the US dollar could keep rising as the Fed holds off on bigger rate cuts.
AI Premium: Clinging to the Narrow Leaders
The steady drumbeat of AI-driven enthusiasm continues to distort market breadth. The Magnificent Seven have already reaped astonishing multiple expansions, and the market is willing to pay these premiums because no credible challenger narrative has emerged.
This narrow lead is likely to continue next week, supported by continued inflows into growth technology and a global investor base that sees U.S. innovation as the only real game in town.
A good strategy now is to maintain allocations to these core winners, especially those that reinvest heavily in R&D, while avoiding chasing late-cycle laggards or high-beta small caps that lack a credible AI angle.
As regulatory and political chatter intensifies in the background, incremental risks remain largely ignored. Until there’s a credible reason to move away from these tech titans, expect more capital to be concentrated in the same few names.
Canada on the Brink: Tariff Shock and Market Fallout
The market remains dangerously complacent about President-elect Trump’s impending tariff threats, particularly the proposed 25% levy on Canadian goods.
Such a move would be devastating for Canadian growth, sending the USDCAD higher and hammering key export-heavy sectors such as energy, agriculture, and industrials.
As illustrated in the chart below, Canada’s historically low effective tariff rate would spike sharply under these proposals, alongside Mexico and China. This shift, combined with Trump’s baseline tariff considerations, could raise U.S. annual tariff revenues to $413 billion.
The stark jump underscores just how significant these measures would be to North American trade flows.
Investors should act now: hedge Canadian equity exposure, reduce CAD-denominated risk, and position for U.S. dollar strength. Domestically focused U.S. companies stand to benefit as cross-border disruptions escalate, further reinforcing their market positioning.
If Trump strikes early, the fallout could trigger a trade storm, making defensive repositioning a necessity in the coming weeks.
The Index Shuffle: Fading the Add/Delete Hype
Index rebalancing season has become a familiar event, and the so-called buy the adds, sell the deletes trade has long since lost its luster. The ecosystem of savvy traders and market makers has drained these opportunities of their once fabled alpha.
Going into next week, any focus on rumored index reshuffles – such as the potential inclusion of high-flyers like MicroStrategy (MSTR) or Palantir (PLTR) – should be met with skepticism.
Historically, these additions have failed to deliver sustainable outperformance and often underperform once the euphoria of the announcement wears off. The takeaway: When a headline screams XYZ added to a major index, use it as a contrarian cue.
Consider selling the hype-driven pop and rotating into undervalued names that have been relegated to the sidelines – these deletions and unloved sectors may eventually outperform the darlings once the artificial bidding pressure is gone.
China’s Growth Pulse: Fiscal Measures Under Scrutiny
China’s upcoming industrial production, retail sales and investment data will provide the clearest near-term indication of whether Beijing’s recent policy signals are more than empty promises.
After weeks of modest tweaks to fiscal and monetary policy, these numbers will need to show a concrete shift in momentum to sustain investor optimism.
Market participants are no longer impressed by mere rhetoric; they need tangible confirmation that the Chinese authorities are injecting a real shot of adrenaline into domestic activity.
We expect the data to be stronger than expected and anticipate renewed interest in commodities linked to Chinese demand – think industrial metals and energy – while China-focused ETFs and equities should find a bid.
Bank of Japan Decision: On the Cusp of a Delayed Hike
The BoJ huddle midweek has global macro traders on edge. After weeks of conflicting signals, the market is leaning towards the central bank holding steady for now and punting a rate hike into January.
By delaying action, the BoJ gives itself more runway to confirm economic resilience and wage growth, but this also keeps the yen on the defensive in the short term, reinforcing a weaker JPY narrative.
While a surprise December hike would shock the system, it remains unlikely. The more probable outcome—a hold, paired with guidance that tightens expectations for a hike in Q1—pushes investors towards shorting the yen against the dollar and buying Japanese equities tied to exporters.
Most Impactful Events to Watch Next Week
Credit: Alpha Hero
