Opening Market Update

(Wednesday market open) Black Friday and Cyber Monday line up in the parking lot after tomorrow's holiday feasts. Before that, there's business to take care of as investors digest Nvidia's (NVDA) earnings, await consumer sentiment data, and ponder a wild card announcement from the OPEC oil cartel.

In a curious twist just before the open with implications for the energy sector, OPEC delayed its weekend meeting until November 30, which could help explain crude's early struggles, down more than 4%. The delay could speak to members having trouble reaching consensus about anticipated additional production cuts. With crude prices down 20% from recent peaks, some smaller OPEC members might not be enthusiastic to trim output.

Nvidia shares wobbled in the premarket hours, initially stumbling and then making up ground after the chip company easily surpassed analysts' earnings and guidance estimates but said it could face challenges in China due to U.S. export restrictions. Shares inched slightly higher in the final hour before the open and several Wall Street analysts raised their price targets, praising the quarterly results.

Chips remained in headlines as OpenAI said it's reached "an agreement in principle" for Sam Altman to return as CEO. Microsoft (MSFT), which had planned to bring Altman aboard, issued a press release saying it looks forward to continued partnership with OpenAI. Shares of Microsoft bounced 1% in premarket trading.

The day before a holiday tends to feature light volume, meaning potentially larger swings in the market if things get moving. Anyone trading today should consider extra caution, perhaps keeping trade sizes lower than usual, or simply wait until after the celebrations.

Even factoring in yesterday's light losses on lower-than-average volume, the major indexes remain much higher this month. The S&P 500^® Index (SPX) is up 8.2% and the Nasdaq-100^® (NDX) is up 10.5%.

• The 10-year Treasury note yield (TNX) fell to a two-month low at 4.37%.
• The U.S. Dollar Index ($DXY) popped back above its 200-day moving average near 103.6.
• Cboe Volatility Index^® (VIX) futures trade near 13.03, the lowest since mid-September.
• WTI Crude Oil (/CL) pulled back 4% to below $75 per barrel after OPEC postponed its meeting until November 30.

Claims and goods: Initial Weekly Jobless Claims retreated to 209,000 in the most recent data, while Nondefense Durable Goods Orders ex-aircraft (a proxy for business spending) was down 0.1%, the first negative number since July. Continuing claims fell slightly but remain up from a month ago, and are a good barometer of how easy or difficult it is to find a new job.

The claims data hint that the labor market remains healthy, but the Durable Orders data is a reminder that demand appears to remain light for major discretionary purchases.

Minutes redux: In his press conference after the last Federal Open Market Committee (FOMC) meeting on November 1, Federal Reserve Chairman Jerome Powell fielded a question about rate cuts. He responded that policy makers weren't even thinking about those. Tuesday afternoon's release of minutes from that FOMC meeting confirmed his answer, showing that rate cuts weren't discussed.  Policymakers remained resolute about keeping rates high enough to squeeze inflation toward the Fed's 2% annual goal from current core Consumer Price Index (CPI) level of 4%, the minutes revealed. They also seemed ready to raise rates again if necessary.

While that meeting occurred before the recent rate-friendly inflation data, the minutes reinforce how much daylight may remain between the FOMC and futures market investors, who've priced in almost a one-third chance of a rate cut by March and several rate cuts in 2024.

"The October surge in Treasury yields helped tighten financial conditions, but that has since reversed," notes Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research. "An additional easing in financial conditions could keep the Fed more hawkish than expected."

There's plenty of data between now and March, of course, but it feels early to jump aboard the trim train.

"Our long-term view is that the Federal Reserve will ease rates starting mid-2024 as inflation continues to fall and economic growth slows," write Kathy Jones, chief fixed income strategist at Schwab, and Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "We expect 50 basis points in cuts in mid-2024."

Nvidia (NVDA) kept alive its string of beating Wall Street's quarterly estimates, but shares wavered. The initial ho-hum reaction suggests investors might have baked in good news ahead of the release with shares up sharply this month, or that they hoped the company would impress even more.

The data center business—Nvidia's bread-and-butter product segment in artificial intelligence (AI)—grew 279% year over year and 41% sequentially. In addition, the company's overall revenue of $18.12 billion came in nearly $2 billion above Wall Street's average forecast. Guidance for revenue of around $20 billion in the current quarter exceeded average expectations of nearly $18 billion as well.

If you're looking for nitpicks, automotive revenue grew just 4% and Nvidia continues to expect challenges in China due to U.S. export restrictions. Analysts reviewing the earnings focused on data center strength and what they called strong guidance and noted the positive tone on Nvidia's call.

Clear the aisles: Retailers await Black Friday even as several experts recently reported consumer caution. The National Retail Federation (NRF) expects 182 million people to shop in-store and online from Thanksgiving Day through Cyber Monday this year, up by 15.7 million from last year. Three quarters of holiday shoppers plan to shop during the five-day weekend, up from 69% in 2019, the last pre-pandemic year. The majority cite deals that are "too good to pass up," the NRF said. Earnings from companies like Amazon (AMZN), Target (TGT), Walmart (WMT), Apple (AAPL), Best Buy (BBY), and Macy's (M), among many others, could ultimately benefit if holiday shopping proves stalwart. Check next week to see if the NRF has a postgame wrap-up.

Data break: Anyone hungry for more reports after this morning's final November University of Michigan Consumer Sentiment number at 10 a.m. ET will have to wait until next week. If you're really working up a holiday appetite, international economies feature data releases over the coming days. They include Japan's inflation report on Thursday and a smattering of European numbers on Friday along with a speech by European Central Bank (ECB) President Christine Lagarde. U.S. equities trading ends at 1 p.m. ET Friday.

Consensus for today's sentiment report, by the way, is 60.9 for the headline, up from the previous 60.4, according to Briefing.com. Inflation expectations are important to track deeper in the report.

Early today, futures trading pegged chances at 99.8% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following the December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC's January 30–31 meeting are 97.8%. The market prices in chances of the Fed cutting rates 25 basis points by its March meeting at 31.4%.

Talking technicals: Weakness in the U.S. 10-year Treasury note yield weighed on the U.S. Dollar Index ($DXY) recently, pushing it below its 200-day simple moving average (SMA) near 103.6 to nearly three-month lows. There's not much in the way of technical support between current levels and 100, where it bottomed out in mid-July, says Schwab's Nathan Peterson.

Ideas to mull as you trade or invest 

Data? Did someone say, "data?" The Conference Board's Leading Economic Index dropped in October for the 19^th consecutive month, but like a tree falling alone in a forest, did anyone hear it? In the past, long stretches of lower leading indicators usually preceded recessions, but cause and effect are never quite that simple. Even a year ago, when the index was down seven straight months, there was widespread talk it might mean recession. But to our knowledge, no recession arrived. Other recent data also causes head-scratching. Consider the harsh consumer sentiment readings from the University of Michigan, with an update due today. Headline sentiment is down four straight months and nearly at historic lows posted a year ago. Still, U.S. retail sales are up 3.1% annually over the last three months. Does that mean gloomy consumers are treating themselves to some "retail therapy?" Whatever the reason, the sentiment data don't exactly match what's happening on the ground, just as leading economic indicators continued slipping most of the year even as Gross Domestic Product (GDP) grew nearly 5% in Q3. There's no simple answer to such discrepancies, but they remind us that the data each week don't necessarily tell a single, linear story. 

Note to readers: U.S. markets are closed on Thursday, November 23, for the Thanksgiving holiday. Schwab's opening and closing market updates will not publish tomorrow, but return on Friday.   

Nov. 23: U.S. markets closed for Thanksgiving holiday. 

Nov. 24: No major data or earnings expected. Markets close at 1 p.m. ET. 

Nov. 27: October New Home Sales 

Nov. 28: November Consumer Confidence and expected earnings from Hewlett Packard Enterprise (HPE) and CrowdStrike (CRWD). 

Nov. 29: Q3 GDP-Second Estimate, Fed Beige Book, and expected earnings from Dollar Tree (DLTR), Foot Locker (FL), and Hormel (HRL).