This Week

The market often needs a few days to fully digest an FOMC, and after Wednesday’s initial reaction—stocks higher, yields lower, and volatility getting crushed—the tone shifted on Friday. Treasury yields resumed the grind higher we saw heading into the Fed, while equities pulled back from record highs, amplified by Broadcom’s post-earnings decline. That leaves the market set up a bit differently heading into a week with some very important macro data, which we’ll get to in a moment—but first, a quick recap of some of the weekend’s news:

• Trump's Fed pick comes into focus, economic data backlog clears: What to watch this week (Yahoo Finance)

  • Stocks closed on Friday in the red, with the tech-heavy Nasdaq Composite down roughly 1.7% while the blue-chip Dow Jones Industrial Average and benchmark S&P 500 shed 0.5% and 1%, respectively. For the week, the Nasdaq fell about 1.5% while the Dow gained over 1%. The S&P 500, which shed 0.6% for the week, closed at a record high on Thursday. The week's economic calendar will also continue to work through the backlog of delayed data from the government shutdown, with the November jobs report set for release on Tuesday and November inflation data due out Thursday morning.

• Oracle’s collapsing stock shows the AI boom is running into two hard limits: physics and debt markets (Fortune)

  • Investors worry how Oracle will pay for these massive outlays as its underlying revenue streams, cloud revenue and cloud-infrastructure sales, also fell short of Wall Street’s expectations. Analysts have described its AI buildout as debt-fueled, even though the company does not explicitly link specific debt to specific capital projects in its filings. And by Friday, even the crown jewel of Oracle’s AI strategy—its OpenAI data centers—was showing cracks.

• Oracle Debt Trades Like Junk as Bond, CDS Spreads Flare (Bloom berg)

  • Oracle Corp.’s new investment-grade notes are now trading more like junk bonds, as delays on the completion dates for some data centers add to fears about profits from its artificial intelligence investments. Extending declines after quarterly earnings earlier this week, paper losses for investors that bought the $18 billion of high-grade notes that Oracle sold in September now totals about $1.35 billion, according to Bloomberg News analysis. The bonds were issued as the company ramps up spending on AI projects. The premium on the database software maker’s 5.2 per cent notes maturing in 2035 widened 0.17 percentage point Friday to 1.71 percentage points, according to Trace. The bonds were issued at 1.05 percentage points above comparable Treasuries.

• BOJ to pledge more rate hikes at next week's policy meeting, sources say (Reuters)

  • The Bank of Japan will likely maintain a pledge next week to keep raising interest rates, but stress the pace of further hikes will depend on how the economy reacts to each increase, said three sources familiar with its thinking. Markets have almost fully priced in the chance of a rate hike to 0.75% from 0.5% at the December 18-19 meeting, after Governor Kazuo Ueda essentially pre-announced such a move. Attention has shifted to how far the BOJ could raise rates before they reach a neutral level, which neither stimulates nor cools growth.

• OpenAI Ends ‘Vesting Cliff’ for New Employees in Compensation-Policy Change (WSJ)

  • OpenAI told staff this past week that it was ending a compensation policy that required employees to work at the company for at least six months before their equity vests. The change to the “vesting cliff,” announced by applications chief Fidji Simo, is designed to encourage new employees to take risks without fear of being let go before accessing their first chunk of equity, according to people familiar with the matter.

• Kroger CEO flags alarming shift in how customers shop (TheStreet)

  • Interim Kroger CEO Ronal Sargent has seen some of his company’s customers shop more hesitantly. “As you’ve been reading, consumer sentiment has declined a lot over the last 4 months. And there are a lot of reasons behind that, whether it’s a slowing job market or the government shutdown, the SNAP benefits, concern about inflation, and categories like beef, coffee, and chocolate,” he said. People, he noted, have not stopped visiting, but their behaviors have changed. “I just think customers are managing their budgets carefully. And they’re making more trips. They’re making smaller trips. The idea of stocking up is declining a bit,” he added. That has not impacted every shopper. “And we’re seeing this economy where high-income premium shoppers continue to spend, while lower-income customers are pulling back more aggressively,” Sargent said.

SPX options are pricing in just shy of a 1.5% move for this week. That’s about the same as last week. One thing of note on the below expected moves, TLT’s is slightly more than last week, even though that included an FOMC meeting. That implies a little more nervousness on the part of the market into this week’s data than last week’s more or less priced in rate cut:

This Week’s Expected Moves:

• SPX/SPY: 1.4% (6725-6925)

  • QQQ: 1.8%

  • IWM: 2.0%

  • TLT: 1.4%

  • USO: 2.7%

  • GLD: 2.4%

This week’s macro calendar is highlighted by the November Jobs number (plus a delayed look at Oct), and a very important CPI given we skipped last month’s. Powell was quite clear in his remarks how important the upcoming numbers will be for future policy, and even warned about potential distortions from the shutdown showing up in the data. This week is a big catch-up week for those numbers with a lot to digest beginning Tuesday. We also get some overseas rate decisions with many on the lookout for the reaction in global bonds to Japan’s move early Friday morning.

Economic Calendar: 

• Monday

  • Fed Speak: Miran, Williams

  • 8:30am - NY Manufacturing

• Tuesday

  • 8:30am - NFP Jobs Number (Oct and Nov)

  • 8:30am - Retail Sales (Oct)

  • 9:45am - S&P PMIs (Dec, prelim)

• Wednesday

  • Fed Speak: Williams, Bostic

• Thursday

  • 8:15am - ECB Rate Decision

  • 8:30am - CPI

  • 8:30 - Initial Jobless Claims

• Friday

  • Overnight: BOJ Rate Decision

  • 10am - UoM Consumer Sentiment

  • Triple Witch Expiration

We’re getting to the end of this quarter’s earnings reports but there are a few interesting ones packed into this pre holiday week, including MU, NKE, and FDX, as well as a few more of the homebuilders:

Earnings (with expected moves):

• Tuesday

  • After-hours: LEN 5.5%

• Wednesday

  • Pre-market: JBL 8%, GIS 4.5%

  • After-hours: MU 9.5%

• Thursday

  • Pre-market: ACN 6.5%, KMX 9%

  • After-hours: NKE 7.5%, FDX 6%, KBH 6%, BB 10%

• Friday

  • Pre-market: CCL 6.5%, CAG 4.5%

One last note: Friday’s tape felt like the market saying “not so fast” to the idea of a smooth grind to new highs into year-end. We got a quick burst of volatility that we really hadn’t seen since the sharp rebound around Thanksgiving, and whether that was just an AVGO-driven shakeout, a pause after fresh all-time highs, or something more meaningful is still an open question. The answer will likely come from this week’s jobs and inflation data.

It’s worth watching the early-week price action and especially implied vols before those prints start to hit Tuesday. The VIX closed below 16 on Friday but that was well off the early-morning highs when it briefly looked like the selloff might accelerate. If it picks up tomorrow into Tuesday’s numbers it could make things interesting into this week’s triple witch expirations.

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