Black Friday Expectations & AI Hype

The short holiday week was light on data releases but heavy on two topics investors should be carefully watching: The likes of consumer resiliency based on the earliest readings on Black Friday sales and the degree to which the Artificial Intelligence theme continues support the idiosyncratic tendencies of the markets concentrated in the Magnificent 7. Consumer resiliency and the AI theme were perhaps the two most important drivers of returns in 2023, and we received a check in on each last week. Not to be discounted, University of Michigan provided additional readings of consumer attitudes, with particular importance that should be drawn to inflation expectations. Nvidia’s earnings overwhelmed, but the markets were underwhelmed. On balance, the equity markets continued to drift higher, with the NASDAQ taking out a 22- month high, supported by the soft-landing thesis for 2024 that has become consensus and optimism that Fed will embark on rate cutting campaign for all the right reasons in the coming year. Seasonality, resilient economic activity and momentum continue to point towards short-term strength in equities, while larger questions loom around whether the expectations for rate cuts in 2024 will be driven by bullish factors for equities or bearish factors, each of which carries different consequences for asset allocation and portfolio construction, reminding us of this week’s Thought to Ponder, and the implications for the new year.

• Black Friday provides the first read on health (and hedonism) of the S. consumer
• Leading Economic Indicators point to risks, while Coincident Economic Indicators raises questions about timing
• Inflation expectations anchored, but stubbornly high
• The most Frequently Asked Question from clients this week: Markets are forecasting rate cuts in 2024, but are they bullish cuts are bearish cuts?

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