As 2025 enters its final full trading week, market attention turns to delayed economic indicators, postponed due to the federal government shutdown. Although investors and Federal Reserve officials are eager for updated data, the disruption has compromised data integrity. Fed Chair Jerome Powell advised caution, stating that incoming reports should be interpreted with skepticism until complete year-end figures are released in January. Despite these caveats, the upcoming jobs report may signal further economic strain, as Sarah Hansen notes. n nJust two days after the employment data, the November Consumer Price Index will be published, with forecasts indicating inflation rising above 3%, both overall and excluding food and energy—well beyond the Fed’s 2% target. Additional reports on retail sales and the Personal Consumption Expenditures Price Index, the central bank’s preferred inflation gauge, are also expected. A full weekly economic calendar is available here. n nAmid these developments, divisions within the Federal Reserve are widening. For now, only one rate cut is anticipated in 2026, though this outlook could shift as more data emerges. n nAI Sector Faces Reality Check n nLast week, stocks tied to artificial intelligence declined following disappointing earnings, while small-cap equities saw a modest rebound. Two former leaders of the AI rally—Oracle (ORCL) and Broadcom (AVGO)—suffered sharp losses after their latest financial disclosures. n nIn mid-September, Oracle appeared unstoppable, nearly doubling its value in 2025. A key driver was a 36% single-day surge after announcing $317 billion in performance obligations—contracted revenue not yet earned. However, concerns mounted when it emerged that $300 billion stemmed from a deal with OpenAI, a company generating less than $20 billion annually. By the time Oracle reported earnings, its share price had dropped by one-third since September 10. The situation worsened when actual revenue and operating income missed projections, and management signaled increased spending on data center expansion. The stock fell another 10% on Thursday and 6% on Friday, erasing all prior gains from its September rally. Morningstar analyst Luke Yang reduced the fair value estimate to $286 from $340, though he maintains the stock is undervalued. n nBroadcom also disappointed investors. Despite record revenues, the market reacted negatively to management’s observation that its fast-growing AI chip segment carries lower profit margins than its traditional products. After resisting recent tech sector weakness, the stock plunged 11% on Friday. Morningstar senior analyst William Kerwin sees this as a buying opportunity: “Broadcom’s AI chip business is accelerating, with even greater growth ahead. Investors now have a rare chance to invest in a proven leader.” n nSmall-Cap Value Gains Traction, Temporarily n nWhile large technology names declined, small-cap value stocks rose nearly 2.0%, with mid-cap value up 1.7%. Some analysts attribute the shift to expectations of future rate cuts, though this contradicts mixed signals from the Fed. Given that large-cap stocks have gained 20% this year compared to 15% for small-cap equities, the rotation may reflect portfolio rebalancing rather than fundamental changes in economic outlook. n— news from Morningstar
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Markets Brief: Economic Data Returns, but Investors Should Tread Carefully
Heading into 2025’s last full trading week, the focus will likely be the incoming government data on the economy, which had been delayed by the federal shutdown. n nWhile investors and Federal Reserve officials are hungry for an update, the shutdown did more than delay the reports; it muddied the actual data collection. Fed Chair Jerome Powell cautioned against reading too much into the reports, saying “we’re going to get data, but we’re going to have to look at it carefully and with a somewhat skeptical eye” until the year-end data comes out in January. Still, the jobs report will likely provide a sense of direction, and as Sarah Hansen writes, the news isn’t likely to be good for the economy. n nJust two days after the jobs report, we’ll get the November Consumer Price Index, and that data is also not likely to be friendly. Forecasts call for inflation to tick higher above 3%, both overall and excluding food and energy. That’s well above the Fed’s 2% target. Also due are reports on retail sales and the Fed’s favored inflation indicator, the Personal Consumption Expenditures Price Index. Our weekly economic calendar can be found here. n nAll this is happening while divisions grow at the Fed. For now at least, only one interest rate cut is penciled in for 2026. But expectations can (and likely will) change as the economic picture becomes clearer. n nA Bad Week for AI Trade Leaders n nLast week brought losses for artificial-intelligence-related stocks after shoddy earnings, as well as a slight boost in small-cap names. Two of the stocks that had been leaders in the AI tech rally—Oracle ORCL and Broadcomm AVGO—got battered after their latest earnings reports. n nIn mid-September, Oracle looked unstoppable, having nearly doubled in 2025. This included a 36% one-day jump on news that the firm had added $317 billion in performance obligations (revenue from contracts that have been signed but not yet fulfilled). Things soured when it was revealed that $300 billion of that came from a deal with ChatGPT creator OpenAI, which is reported to generate less than $20 billion in revenue per year. By the time Oracle reported earnings last Wednesday, its stock had lost a third of its value since Sept. 10. It had become a poster child for investor concerns about overinvestment and unsustainable borrowing to fund AI spending. n nThe company’s earnings report only made things worse, as reported revenue and operating income fell short of expectations, while management said it would be spending more on its data center buildout. Oracle lost another 10% on Thursday and 6% on Friday, wiping out more than its entire September rally. Morningstar equity analyst Luke Yang lowered the stock’s fair value estimate to $286 from $340, and he now thinks it is undervalued. n nInvestors also found Broadcom’s earnings lacking. Even as the company posted record revenues, the focus appeared to be on its commentary that its now-booming AI-chip business has lower margins than non-AI products. The stock, which had weathered the slump suffered elsewhere in the tech sector in recent weeks, tumbled 11% on Friday. Morningstar senior equity analyst William Kerwin urges investors to buy the dip: “Broadcom’s AI chip business is accelerating, and we see even greater astronomic growth ahead … investors now have a terrific opportunity to buy into an AI winner.” n nSmall-Cap Value Stocks Spring to Life, for Now n nWhile tech stocks took losses last week, the on-again/off-again rotation to small caps was back on. Small-cap value stocks rose nearly 2.0%, and mid value stocks were up 1.7%. Commentators attributed some of the bounce to market expectations of more interest rate cuts next year, which is challenging to square with conflicting guidance from the Fed. But with large-cap stocks up 20% this year, ahead of the 15% gain on small-company stocks, it’s possible it’s just a reflection of repositioning more than anything fundamental.