Categories:
Key areas of focus
- The government is scheduled to release its delayed initial estimate of third-quarter U.S. GDP on Tuesday, delayed by more than six weeks due to the recent shutdown. Following a contraction in the first quarter, economic growth reaccelerated meaningfully, with second-quarter GDP expanding at a 3.8% annualized pace.
- November CPI increased at a 2.7% annualized pace, coming in below the 3.1% consensus and signaling softer inflation than expected. While this could provide the Fed additional flexibility around potential rate cuts in 2026, officials noted that data-collection disruptions likely distorted some categories, artificially pulling the headline reading lower by roughly a tenth of a percentage point.
- With the holidays approaching, the stream of potential market catalysts tends to dry up. Corporate updates become less frequent, Congress breaks for the holidays, and the number of scheduled catalysts declines, often resulting in quieter trading conditions and increased sensitivity to flows, sentiment, and seasonal dynamics.
Week in review
It was a busy week for macro data as delayed releases continued to reshape the economic narrative, with both labor market and inflation signals coming into clearer focus. Markets got off to a slow start on Monday as investors awaited Tuesday’s catch-up labor reports. The Empire State Index showed a sharp decline, with soft orders and shipments offset by firmer employment and rising price pressures. Tuesday brought the main event, with payrolls showing modest job growth in November following a government-driven October decline. Revisions reduced prior job gains in August and September. At the same time, core retail sales surprised to the upside, pointing to continued consumer spending momentum. After a quiet Wednesday, Thursday brought a key inflation update. November core CPI came in below expectations, lifting U.S. equities. Fed officials cautioned that data collection issues likely understated the reading. That optimism was tempered by the Philly Fed index falling deeper into negative territory, marking a third contraction. Stocks ended the week higher despite softer consumer sentiment and rising inflation expectations from the University of Michigan’s Consumer Confidence Survey.
Spotlight
The Santa Rally hasn’t followed its usual script this year. Investors have had to navigate a heavy dose of post-shutdown economic data that includes both stale and fresh signals. Heading into the FOMC meeting, the key “known unknowns” were the labor market and the pace of growth (neither the jobs report nor 3Q GDP had been released). Last week offered some clarity on the former, while this week brings insight into the latter. November nonfarm payrolls rose 64k, modestly above expectations, following a 105k decline in October that was distorted by a 162k drag from federal government payrolls tied to the deferred resignation program. Adjusting for that distortion, job growth remains modest but positive. The unemployment rate rose 0.12% to 4.56%, but only 0.02% when excluding government workers. The initial market reaction was mixed, with the 10-year Treasury falling. However, defensive equity sectors such as Utilities, Real Estate, and Healthcare lagged while Tech outperformed. This split likely reflects ongoing uncertainty around the Fed’s next move and the timing of future cuts.
Markets
Sectors
Style & Market Cap
Sources
The Federal Reserve Bank of New York, Empire State Manufacturing Survey, retrieved from New York Fed, https://www.newyorkfed.org/survey/empire/empiresurvey_overview
2. Jobs Report
U.S. Bureau of Labor Statistics, Employment Situation Summary, retrieved from U.S. Bureau of Labor Statistics; https://www.bls.gov/news.release/empsit.nr0.htm
3. Retail Sales
United States Census Bureau, Advance Monthly Sales for Retail and Food Services, retrieved from U.S. Census, https://www.census.gov/retail/sales.html
4. Core Inflation (CPI)
U.S. Bureau of Labor Statistics, Consumer Price Index Summary, retrieved from U.S. Bureau of Labor Statistics; https://www.bls.gov/news.release/cpi.nr0.htm
5. Consumer Sentiment
Surveys of Consumers, University of Michigan Consumer Sentiment Index Summary, retrieved from University of Michigan, https://www.sca.isr.umich.edu/
6. Philly Manufacturing Survey
The Federal Reserve Bank of Philadelphia, Manufacturing Business Outlook Survey, retrieved from Philadelphia Fed, https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/manufacturing-business-outlook-survey
Market Data:
Morningstar Direct using Morningstar Indices
Authors:
Anthony Silva
CFA®
Senior Director of Strategy Management
World Investment Advisors, LLC