The stock market had a powerful rebound on Friday, with major indexes clearing October highs. Even with weak market breadth, leading stocks performed well, including Nvidia, Broadcom, and Taiwan Semiconductor, which all flashed buy signals on Friday. Earnings winners such as MercadoLibre, Roku, and Datadog are also showing potential buying opportunities for investors. Investors are encouraged to look for stocks setting up and taking advantage of these buying opportunities while being aware of the potential risk posed by Moody’s negative U.S. outlook, especially given that a government shutdown remains a possibility.
Moody’s Investors Service has cut its U.S. outlook to negative from stable due to high budget deficits and political polarization. Although it reaffirmed the AAA rating on U.S. sovereign debt, Moody’s warns of a high possibility that future governments may not address long-term issues with regards to the country’s deficits. This could further be complicated by the fact that a 45-day government funding measure expires on November 17, potentially leading to a government shutdown.
Dow Jones futures are set to open Sunday night, with S&P 500 and Nasdaq futures doing the same. As they open, the ETFs project a minor decrease for the Dow Jones and S&P 500, while the Nasdaq 100 is projected to drop slightly. These slight decreases are due to the negative U.S. outlook provided by Moody’s, leading to increased interest rates and warning of larger future deficits. Overall, the stock market rally is looking healthy but investors should be cautious, taking advantage of potential buying opportunities while being cognizant of the risks that come with the uncertain political and economic situation.
