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Signs of a sector rotation — plus 2 more themes to watch in the stock market

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It was another win for the bulls this week. Wall Street started the month of December higher Friday — building on November’s rally, which broke a three-month losing streak. November really lived up to its stellar reputation, with monthly gains of nearly 8.8% for the Dow , about 8.9% for the S & P 500 and 10.7% for the Nasdaq . Historically, November is the best month of the year for the stock market, and December is third, according to the Stock Trader’s Almanac. The market was able to push higher Friday, despite Federal Reserve Chairman Jerome Powell saying talk of cutting interest rates is “premature” and that more hikes could still happen. Many investors assumed the Fed was done with its tightening cycle now that inflation has shown signs of moderating. More proof that the Fed’s battle with inflation is working came on Thursday when the central bank’s favorite inflation gauge showed a continued downtrend in price pressure. The core PCE (personal consumption expenditures) price index, which excludes the food and energy sectors, rose 0.2% in October and 3.5% on a year-over-year basis. Both gains were lower than estimates. Under the surface this week, we also saw signs of a possible market rotation in the works. That’s just one of three major themes to watch in the week ahead. 1. Rotation watch : We must look to next week’s trading for confirmation that we’re in the grips of a rotation or simply a head fake. Signs of the former were on display this week as the two of the biggest sector winners of the year, communication services and technology , trailed the market. The rotation was also evident at the index level, with the Dow the clear leader and the tech-heavy Nasdaq the laggard. The moves are not that surprising given our view that beyond the Magnificent 7 stocks that grab the headlines, there are many coiled springs that needed so-called less bad news for big upside moves. Foot Locker (FL) this week was a prime example, grabbing a better-than-feared financials surge in shares that propelled the stock to the top of our best-performers list for November. 2. Jobs, jobs, jobs : The most important release of the week comes Friday in the form of the November nonfarm payrolls report. This is an indirect but important read on the health of the economy and future path of inflation. Though it doesn’t provide information on prices or sales activity, it provides a read on buying power, after all, employment is key to continued spending power. For this reason, in addition to the headline number, economists expect to see 150,000 additions, we are keeping a close eye on the unemployment rate (3.9% expected) and wage inflation, where we are looking for 4% increase versus the year ago period. Prior to Friday’s upcoming jobs report, ADP’s look at hiring trends at U.S. companies is out Wednesday. Economists are expecting to see 125,000 new additions for November. The ADP’s track record has not been that great of a harbinger of the government’s monthly jobs data. But it’s still worth watching. 3. Club earnings : One of our late-reporting companies, Broadcom (AVGO), releases its quarter results after the closing bell Thursday. Expectations have likely been tempered on the back of earnings from Marvell Technology (MRVL), which reported better-than-expected results but provided slightly lower-than-expected sales and profit guidance. It’s a similar dynamic to what we saw from Cisco Systems (CSCO) two weeks ago. Networking is certainly going to be a key focus area for us at Broadcom. Last time around, CEO Hock Tan said Networking revenues were up 20% in the quarter – now representing 40% of semiconductor segment revenues – and guided for an acceleration in the then-current quarter to be reported. Commentary around custom chips will also be of interest as Broadcom is a known design and manufacturing partner for major artificial intelligence players like Club name Alphabet (GOOGL). We’ll also be looking for additional color on the recently finalized VMWare acquisition, which should now play into guidance, as we look to 2024. As of Friday, the market remains overbought, with the S & P Short Range Oscillator at 7.33%. Any reading of 4% or more means the market is technically overbought (a reading of less than minus 4% means oversold). Another pullback could be lurking. Here’s the full rundown of all the important domestic data in the week ahead after the Club sent out three trade alerts this week concerning four stocks. We also updated our price targets on six stocks and changed our rating on another. Monday, Dec. 4 10 a.m. ET: Factory orders Before the bell earnings: Science Applications (SAIC) After the bell: GitLab (GTLB), Joann (JOAN) Tuesday, Dec. 5 10 a.m. ET: ISM Services PMI 10 a.m. ET: JOLTS (Job Openings and Labor Turnover Survey) Before the bell: Nio (NIO), AutoZone (AZO), JM Smucker (SJM), Signet Jewelers (SIG), DSW-owner Designer Brands (DBI) After the bell: MongoDB (MDB), SentinelOne (S), Toll Brothers (TOL), Dave & Busters (PLAY), Stitch Fix (SFIX), Asana (ASAN) Wednesday, Dec. 6 8:15 a.m. ET: ADP private-sector employment Before the bell: Ollies Bargain (OLLI), Campbell Soup (CPB), Thor Industries (THO), Brown-Forman (BF), United Natural Foods (UNFI) After the bell: GameStop (GME), Chewy (CHWY), ChargePoint (CHPT), Sportsman’s Warehouse (SPWH) Thursday, Dec. 7 8:30 a.m. ET: Initial jobless claims Before the bell: Dollar General (DG) After the bell: Broadcom (AVGO) , lululemon (LULU), DocuSign (DOCU), Vail Resorts (MTN), Smith & Wesson (SWBI) Friday, Dec. 8 8:30 a.m. ET: Nonfarm payrolls (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

People walk by the New York Stock Exchange (NYSE) on November 02, 2023 in New York City.

Spencer Platt | Getty Images News | Getty Images

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Signs of a sector rotation — plus 2 more themes to watch in the stock market