Weekly Recap:

by Michael P. Reinking, CFA & Eric Criscuolo

The long-term impact of personal AI agents remains far from decided. Secret agents*? Not much to debate.

The post-election volatility dominated the discussion last week, following the Democrat’s convincing sweep at the polls. The Blue Tsunami extended to local elections, putting the AI data center buildout under even greater scrutiny. The extended AI ecosystem had been stumbling heading into the election and sold off the next day, but the rest of the market held up well. Broad damage hit Thursday when the S&P 500 fell 4%, with weakness across-the-board, followed by a modest bounce on Friday. Despite the selloff however the S&P didn’t fall enough to test support at its 200 day moving average.

The wide-ranging analysis of the ramifications from the election didn’t last a week in the financial media cycle. If you were sleeping off an election-fueled hangover from too much merriment (Dems) or sorrow-drowning (Reps) you may have missed an interesting state of affairs over the weekend. We’re talking, of course, about Notre Dame knocking off #1 ranked Miami in college football. Also, Nvidia CEO Jensen Huang’s affair with an executive at a Singapore data center company, which was also a major Nivida customer, and who may be a Chinese spy. Another affair, this one with an Nvidia employee, came out soon after, and led to Huang resigning, with CFO Colette Kress taking over as interim CEO.  You won’t have any issue finding more details.

Given how vital NVDA is to the entire AI trade that has driven equities ever since ChatGPT was introduced four years ago, the price action this week was noteworthy.

NVDA fell 4% Monday but was down over 7% at its lows. Basically everything else shrugged it off. The S&P 500 gapped up and kept going, gaining over 2%. However as the week continued and Huang officially resigned NVDA continued to fall, down ~13% this week and ~30% from its closing high a month ago.  

Despite this, it’s pretty impressive to see the NYSE Semiconductor Index up ~10% this week. Other chipmakers like AMD and Broadcom were up ~20%. These companies are potential beneficiaries from any operational issues at Nvidia, along with being on the long end of pair trades that short NVDA. The reflexive take is the damage is focused on NVDA: reputationally, losing a visionary leader, lack of robust succession plan, etc. 

The worst-case scenario is if this begins to unravel the AI spending juggernaut and lays bare the depths of the Bear thesis: propped up demand, revenue circularity, impossible ROIC. The WSJ had a few articles discussing the internal debates that were occurring within NVDA around some of this. So far it’s contained, and Jensen Huang reportedly agreed to testify in front of Congress before Thanksgiving. That should be quite an impressive appetizer before the turkey and cranberry sauce.

We were talking on the trading floor about how it definitely does not feel that the S&P 500 is up over 2% this week. But, it is. The equal-weight was inline, with all sectors higher- cap-weighted and equal-weight. Friday did see weakness creep into equities as the big non-NVDA semis advancers gave back some of those gains. The S&P failed to regain its 100d ma (~7625), closing just below it, but bounced off 7500. Small caps lagged but still finished higher despite rates spiking- more on that in a moment.   

While overshadowed by the goings-on in Tech, Energy actually led the sectors this week despite crude oil and gasoline falling. The commodity saw sharp declines on Monday and Tuesday but rallied the rest of the week. Natural-gas plays saw stronger performance as that commodity rose in both the US and Europe this week. The LNGX Global gas ETF gained 7%.

In Comm Services, GOOG and META had gains of 3-5% but there were also solid gains across the Media (CHTR +17%, earnings follow through) and Entertainment groups (TTWO +6%, earnings, upcoming GTA launch).    

Industrials saw a big bounce in the AI infrastructure stocks: BE, PWR, FIX, VRT among those up ~10%. The sector was solid all around though with defense contractors bouncing (ITA ETF +3%). The Dow Transports was up ~4%.

Consumer Staples and Discretionary both saw gains of over 2% but if you looked at the equal-weight versions, the defensive Staples outperformed as TSLA’s 9% zero-emission gain propped up the market cap Discretionary performance- talk of a merger with SpaceX is gaining steam.

In Healthcare the NYSE Arca Pharma index rose 3% - LLY gained 7%- while Moderna fell over 10% to weigh on Biotech. CVS continued to bounce from last week’s selloff after it announced plans to split the pharmacy business from the managed care segment.

Real Estate (yields jumping) and Materials lagged this week. The large data center operators DLR and EQIX rose ~4% this week. The neoclouds and powered shell providers (not included in the REIT sector) saw a lot of volatility but mostly benefited from CRWV earnings. FY26 revenue, capex, and ARR guidance were all raised and managed spent a lot of time discussing funding strategy and customer demand. 

NVDA sucked up most but not all of the oxygen this week. Investors definitely paid attention to the latest CPI data (more below), particularly after Fed governor Waller's lead-in where he contemplated a 50bp hike in December. A huge jump in yields and the worst espionage event since the Patriot’s Spy-gate scandal, and the rest of the market has largely shrugged it off as we scale another Wall of Worry.

After last week’s strong jobs report the focus shifted to inflation data. Just hours before the release of CPI Fed governor Waller provided some foreshadowing, along with the most specific commentary around monetary policy in some time at a Bank of England event. Waller said he would support a 25bp hike in December and potentially a 50bp increase if the CPI was at 0.3% or above. He added the Fed probably needs to reverse the 3 insurance cuts from last year at a minimum and that hiking only 25bp in this cycle risks losing credibility. And then…..

Core CPI hit Waller’s 0.3% threshold, and this supercharged a move higher in both Treasury yields and the USD. Consensus was expecting core to rise 0.2%, and the 0.3% this month was inline with last month. Headline rose 0.4% versus a 0.3% expectation and 0.6% last month as Energy prices fell. However, Food prices rose 0.5% versus September, the biggest monthly increase since December of last year. There were no annual readings due to last year’s shutdown. There wasn’t a silver lining to the report outside of the fact that oil prices have been falling recently. As Schwab Chief Investment Strategist Liz Ann Sonders highlighted, “Inflation breadth is worsening…share of CPI components rising faster than 2% m/m annualized (blue) jumped to 76.3%; the share rising faster than 3% (orange) moved up to 54.5%; and the share above their 5y average (white) rose to 32.2%.”

This morning’s headline PPI came in a touch below estimates up 0.3% MoM and 6.5% YoY, but it wasn’t particularly reassuring either. Core was inline up 0.3% and 5%, respectively. 

This week initial claims ticked modestly higher to 200k but continuing claims moved back below 1.7ml. 

Existing home sales disappointed falling 5.5% m/m from an already depressed number (green line below), hitting the lowest level since August of 2010. New home sales will be released later this month. 

Last week’s strong jobs report and this week’s inflation data pretty much cement a rate hike in December. There has been a steady stream of Fed officials speaking throughout the week and to a man/woman the group is highlighting inflation and the need for further tightening, the only disagreement is on the pace. Fed Waller set the stage and is the most aggressive saying he could support a 50bps move in December. Fed Logan said that at least two more hikes were needed and suggested that it is possible for the pace to move more rapidly this winter. The Winter Solstice is December 21st after the FOMC Rate Decision so not sure if this was meant to be forward guidance. The other contingent of the Committee also supports more tightening but suggested making “calibrated decisions” and being mindful of the potential impact on employment.  It feels like it will be difficult to pull enough members of the Committee along to hike 50bps next month (10% probability). It seems more likely that January is now more firmly in play with markets now pricing in 2 additional hike in Q1 of next year.    

After moving lower throughout most of October yields bottomed last Thursday along with the sharp equity market selloff and have moved sharply higher over the last week. There has been a flattening of the curve with 2-10yr yields up 30-40bps. 

The USD accelerated to the upside this week strengthening against most crosses. In early October the USD index broke above the upper end of the range that had been in place since last spring (~96.50 - 101.50), it had been consolidating over the last month and resolved to the upside this week. 

Europe - Major indices ended the week up >2% but with much less volatility than US markets. Stocks in the European STOXX 600 are on track for their best earnings growth performance (+25% y.y, ex-energy +10%) since 2024. There was broad-based strength with financials, technology and industrials ex autos outperformed. EU leaders held their first dedicated summit on artificial intelligence today, focused on how the region can catch up with the US and China. The UK is reportedly close to a breakthrough on an EU “reset”. US envoy Jared Kushner said an end to the Ukraine war cannot happen without Europe at the table. 

US data next week includes Retail sales, Housing starts and sales, and the latest FOMC minutes. Earnings will include a lot of consumer and retail names including Disney, Home Depot, Lowes, Target and Walmart. That should provide plenty of updates on the consumer- a huge part of keeping the economy strong despite the inflation burden. With impeccable timing, the overwhelming earnings focus will be on NVDA's update. Anthropic’s IPO is also expected. And lastly, President Trump will travel to the APEC summit where he could meet with Xi and Putin. It would be hard to write a script that could top how the calendar is setting up. Enjoy your weekend.   

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