Stock Market Today

NAAIM’s survey of investment professionals* fell to 72.9 from 78.6 the prior week, its lowest since mid-September (71.8). That leaves it below its 4-week average (79.0) and near the bottom of its range since May (71.8 to 102.7). It also sits at the 37th percentile of its readings since 2016, meaning managers have trimmed exposure but are a long way from capitulating.

With NAAIM’s exposure index at its lowest in eight weeks, is it a buy signal? History says not at this level. Since 2016, weeks with the index between 70 and 76 have been followed by S&P 500 returns almost identical to an average week: +1.0% over the next four weeks (vs. +1.1% for all weeks), +3.7% over 13 weeks (vs. +3.5%) and +13.8% over a year (vs. +14.1%).

A meaningful difference only shows up at much lower readings. When the index has been in its bottom tenth (47 or below), the S&P 500 has averaged gains of 6.3% over the next 13 weeks and 20.6% over the next year, although those gains weren’t more frequent than usual, so the edge has come from the size of the rebounds rather than their reliability.

*The index according to NAAIM “represents the average exposure to US Equity markets reported by our members” and ranges from −200% (2x short) to +200% (2x long).

New York Fed President John Williams, the FOMC vice chair, and San Francisco Fed President Mary Daly (a 2027 voter), who has traditionally been in close alignment with the Fed’s old core of former Chair Jerome Powell, Vice Chair Philip Jefferson and Williams, both spoke Thursday. As a reminder, Williams has been one of the more dovish members, tipping the October hold ahead of time (saying there was “no need for urgency”) and later noting that he thought a December hike would be the last under his base case.

On the direction for rates, Williams agreed with the hawks, saying inflation is “far too high” and stubbornly persistent, and that the Fed still has work to do to get policy to the right place, according to Bloomberg and wire reports. He described the economy as resilient and getting stronger but not overheating. On pace, though, he remained more subdued, saying the Fed will need to act “over time,” and didn’t commit to a specific move in December.

On direction, Daly similarly said at the Stanford Institute for Economic Policy Research that “my bias is that further tightening will be needed,” according to Reuters, adding that price pressures are spreading into services, where inflation can be very sticky. “We have a labor market that’s stable, growth that’s good, but we definitely have an inflation problem right now,” she said.

On pace, Daly also was less aggressive than the hawks, saying rising bond yields “are most welcome,” and tighter financial conditions give the Fed “a little more time to make really calibrated decisions.” “That’s why I have said that my bias is to have additional tightening, but exactly how much and exactly when … we have many more pieces of data and information over many, many quarters,” she said. She also said “just because we have quite an inflation problem now, it doesn’t mean that we should completely ignore the possibilities of productivity growth or how that could be disinflationary.”

Overall, all 10 Fed officials who have spoken on the future direction of rates since last Thursday’s selloff lean toward more hikes. But of the seven December voters who have spoken, only Waller has opened the door to larger hikes. That said there remains a gap between the more dovish Williams, Daly, Bowman, Barkin, and Paulson, who seem to prefer a slower cadence, and the more hawkish Waller, Hammack and Logan, who are looking for a quicker pace.

In US economic data, Friday brings us October PPI.

Fed speakers include Boston Fed President Collins (2028 voter) at 9:10am ET, Fed Vice Chair for Supervision Bowman at 10:50am, San Francisco Fed President Daly (2027 voter) at noon and Fed Vice Chair Jefferson at 7pm. Collins and Jefferson are the two we haven’t heard from this week, although Collins is less relevant since she isn’t a voter until 2028.

There are no coupon (>1 year in maturity) Treasury auctions.

No S&P 500 components report.

Ex-US highlights include the second estimate of eurozone third-quarter GDP, final October CPI in France and Spain, Poland’s October CPI and third-quarter GDP, and Brazil’s September retail sales. ECB Executive Board member Schnabel speaks, along with Governing Council members Simkus, Zigman and Sleijpen, and EU leaders hold an informal meeting. Germany’s credit rating is also up for review, and Richemont reports.

From Christophe Barraud’s international Week Ahead rundown: