This morning we got a look at the health of US manufacturing. It remains in contraction for another month — in fact, other than a brief moment of breakeven, US manufacturing has been in contraction for over two years now. We get data on the health of the services sector, which hosts the majority of US jobs. Services are expected to expand in November, which is a positive sign.
Also this week, we see the unemployment rate, job openings, and average hourly earnings, all of which are very important, both economically, and from the perspective of the Federal Reserve. At the moment, investors expect another rate cut at the Fed’s meeting in two weeks. But, the Fed has signaled that they are willing to wait if the economic data warrants it.
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Given earnings growth of 5.8% over this time last year, I am again insisting that stock valuations are stretched, and there is a lot of fragility in this marketplace. Of course, that can persist for some time before anything happens, but for investors nearing their goals, now is a good time to understand how losses can derail your plans.
Chart of the Week
This week’s chart, from Fathom Consulting, shows us what is driving US stocks higher. The “magnificent seven” stocks (Meta, Amazon, Apple, Alphabet, Nvidia, Tesla, and Microsoft) now represent about 45% of the market cap of the rest of the 500 companies in the S&P 500 index. In other words — just seven companies represent almost half of the value of large US companies. To me, that is unsustainable, longer-term.
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