Stocks jumped at Monday's open and bond yields retreated as markets welcomed President-elect Donald Trump's nomination of Scott Bessent to be his Treasury secretary. The Dow Jones Industrial Average closed at a new all-time high and the S&P 500 hit a new intraday high early in the opening session of a holiday-shortened week highlighted by a packed economic calendar.
In a Friday evening post on Truth Social, Trump described Bessent, the former chief investment strategist of Soros Fund Management, as "one of the world's foremost international investors and geopolitical and economic strategists." The president-elect added, "Scott's story is that of the American Dream."
Bessent is also the co-founder of Key Square Group, a macro-focused investment firm that specializes in analyzing economic, political and market conditions to trade across asset classes, including currencies and interest rates as well as commodities and stocks.
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Wall Street is positive about Bessent because of his success as an investor and for the moderating influence he is expected to exert within the Trump administration.
In a November 15 op-ed for Fox News on the subject of Trump's primary tool of economic policy, Bessent writes, "The truth is that tariffs have a long and storied history as both a revenue-raising tool and a way of protecting strategically important industries in the U.S. President-elect Trump has added a third leg to the stool: tariffs as a negotiating tool with our trading partners."
"The nomination of Scott Bessent to be U.S. Treasury Secretary has been a catalyst for lower bond yields, higher equity indices and a weaker dollar this morning," writes Kit Juckes, chief forex strategist at Societe Generale.
The nomination is a palliative for investors "worried about the size of the U.S. budget deficit and the inflationary impact of tariffs. Whether he can help get the U.S. to 3% GDP growth and a 3% budget deficit time will tell, but for now, he has changed the market mood, if nothing else," Juckes concludes.
The yield on the 10-year U.S. Treasury note declined by 15 basis points to 4.27%, while the yield on the 2-year dipped 10 basis points to 4.27%.
The Dow backed off its intraday high but still closed at a record level, rising 1% to 44,736. The S&P 500 also slipped from its intraday high but held on for a 0.3% gain to 5,987. The Nasdaq Composite, meanwhile, edged up 0.3% to 19,054.
Stocks on the move
Earnings season is nearing an end, with 95% of the S&P 500 having reported so far. FactSet Senior Earnings Analyst John Butters notes that with numbers from 462 of the firms in the index, 75% have reported positive earnings per share (EPS) surprises and 61% have reported positive revenue surprises.
"For Q3 2024," Butters writes, "the blended (year-over-year) earnings growth rate for the S&P 500 is 5.8%. If 5.8% is the actual growth rate for the quarter, it will mark the 5th straight quarter of year-over-year earnings growth for the index."
Bath & Body Works (BBWI) was deleted from S&P 500 on October 1, but the stock surged 16.5% after the specialty retailer beat top- and bottom-line expectations for its third quarter and raised its full-year outlook.
"Our strong results exceeded the high end of our net sales and earnings per diluted share guidance," said Bath & Body Works CEO Gina Boswell in a statement. "As a result, we are raising our full-year guidance to fully reflect this outperformance."
Wall Street remains optimistic about BBWI. According to S&P Global Market Intelligence, the consensus recommendation is Buy, and the average 12-month price target for the consumer discretionary stock is $42.76. Even after Monday's strong showing that's about 20% upside.
Macy's (M) stock, which was removed from the S&P 500 in April 2020, fell 2.3% after the retailer announced preliminary results for its third quarter, during which sales declined 2.4% year over year.
Macy's also announced a delay in filing its quarterly statement with the Securities and Exchange Commission (SEC) after management "identified an issue related to delivery expenses in one of its accrual accounts." Macy's determined a single employee "intentionally made erroneous accounting accrual entries to hide approximately $132 to $154 million of cumulative delivery expenses."
The big picture remains murky for the iconic retailer. "It has major disadvantages vs peers around price, product, and service," writes UBS Global Research analyst Jay Sole in a November 18 note. "We believe these dynamics should lead to continuous net losses. M's current stock price does not reflect long-term earnings-per-share challenges, in our view."
Incoming data
With third-quarter earnings season winding down, investors have a packed economic calendar to capture their attention this week. Note that markets will be closed on Thursday and will shut down early on Friday for the Thanksgiving holiday.
Tuesday's releases include the S&P CoreLogic Case-Shiller Home Price Indices at 9 am Eastern time as well as a consumer confidence survey from The Conference Board and new home sales data from the Census Bureau at 10 am. The Federal Reserve will publish the minutes from the November FOMC meeting at 2 pm.
And it's a particularly big Wednesday, with initial jobless claims coming in a day early because of the holiday on Thursday. We'll also see data on durable goods orders, retail and wholesale inventories, the U.S. trade balance and the second read on third-quarter GDP.
The main event is the release of the Personal Consumption and Expenditures Price Index (PCE) series at 10 am. PCE is the Fed's preferred measure of inflation.
"Based on the depth and breadth of the transitions in progress at this time in monetary policy, on Capitol Hill and in the change of Administration along with what appears to be a watershed period in technological innovation, some market participants can't help but wonder if they should be adjusting their portfolio exposures for a myriad of outcomes espoused by various market pundits with widely divergent views and opinions," writes John Stoltzfus of Oppenheimer Asset Management.
"For one, while the pace of inflation appears to be slowing enabling the Fed to move towards more rate cuts in the months ahead," Stoltzfus observes, "the latest CPI numbers showed some inflation stickiness that has proved irksome to those with great expectations for more frequent and deeper interest rate cuts."
According to the CME FedWatch tool, as of Monday afternoon, there is a 55.9% chance the Federal Open Market Committee cuts the target range for the federal funds rate by 25 basis points at its December 18 meeting.
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