A Positive Holiday Week?

The stock market has a couple of potential positives going for it this week -- an historical tendency to climb during the Thanksgiving Week and a possible below-consensus print for the Fed's favorite measure of inflation.  

The S&P 500 has tended to rise in the Thanksgiving Week, particularly on the day before and after the holiday.  This year, the most important US economic data for the week -- the October PCE Deflator -- will be released the day before, November 27.  Consensus agrees with Fed Chair Powell's seeming forecast of 0.2% m/m Total and 0.3% Core (see last week's blog).   However, there is a possibility of a lower print as a result of the different weightings in the PCE Deflator from those in the CPI.  In particular, Used Car Prices -- which jumped 2.7% in the CPI -- gets much less weight in the PCE Deflator.  Meanwhile, Apparel Prices -- which dropped 1.6% in the CPI -- gets greater weight in the Deflator.  To be sure, there are other differences between the CPI and PCE Deflator, as well.  So, a below-consensus print is not certain.

Unemployment Claims are sending mixed signals about the labor market.  Initial Claims are making new lows for the move down, indicating a decline in layoffs.  Continuing Claims, however, have moved up, suggesting some softening in hiring.  Although early, at this point, the Claims data suggest that November Payrolls could be on the soft side once the rebounds from bad weather and strikes (about 100k) are taken out.  Note that the best way to evaluate November Payrolls will be to average the m/m change with October's.  The November Employment Report is due December 6.

The combination of benign inflation and soft underlying job growth could keep open the door for a Fed rate cut at the December FOMC Meeting.  However, Powell's more cautious comments and the uncertainties of fiscal policy under the new Administration next year argue against one.

Regarding fiscal policy, the termination of Trump's Attorney General nominee, Gaetz, may have potentially positive implications for stocks.  Trump's acquiescence of the shift to another candidate raises the possibility that he will compromise on other policy decisions when faced with strong opposition.  As a result, some of his extreme election promises may not be as likely as feared, particularly those that would be harmful to the economy.