It was a volatile but ultimately fairly flat week for U.S. equities. The S&P 500 is around 2.3% below the record high reached three weeks ago. The Nasdaq and Russell 2000 both fell 0.5%, while the Dow Jones gained 0.3%.
Healthcare was strong, including Eli Lilly which surged 11% last week. Several major investment banks raised their price targets on the stock on the back of strong sales of the company’s weight-loss drug Zepbound and diabetes treatment Mounjaro, and on optimism that manufacturing expansion will ease supply bottlenecks. Projections are that sales of the two drugs could exceed US$25 billion by 2028–2030, making them some of the largest-selling drugs in history.
One of the biggest stories last week was political rather than corporate. The US government finally reopened after a record 43-day shutdown. While the economic hit from the hiatus is expected to be modest, consumer confidence and hiring momentum have softened during the disruption. Markets are now watching for a backlog of delayed data, including the September jobs report (due Thursday) and the November flash PMIs (due Friday). This will also be very relevant to the Fed and whether officials cut rates on December 10 - markets now see this as a line ball call.
Despite ongoing debate about whether AI stocks are in a bubble, one of the world’s most respected investors appears unconcerned. On Friday, Warren Buffett’s Berkshire Hathaway released its third-quarter portfolio snapshot, revealing a new holding of more than 17.8 million shares of Alphabet (Google’s parent company), worth approximately $4.9 billion. The position was the conglomerate’s largest addition of the quarter and immediately made Alphabet one of Berkshire’s top holdings.
Alphabet shares rose nearly 4% in after-hours trading following the disclosure.
The move is particularly interesting given Buffett’s historical caution toward technology companies. While Berkshire’s largest single holding remains Apple (valued around US$65 billion), Buffett has often characterised it as a consumer products firm rather than a pure tech play. Alphabet, by contrast, is squarely in the technology camp.
Furthermore six years ago, Buffett and Charlie Munger publicly admitted to Berkshire shareholders they had “missed the boat” on Alphabet when its stock was below US$60 - it now trades around US$276. Perhaps this late addition reflects a recognition that, while not all companies will win in the AI race, some clearly will. Alphabet’s latest results showed strong growth in its cloud and advertising divisions, with AI-driven ad products boosting both Search and YouTube revenues.
Maybe someone else at Berkshire is driving this (Buffett is released his final Thanksgiving letter as CEO of Berkshire last week). Or perhaps Buffett appreciates Alphabet’s fortress balance sheet, with around $100 billion in cash.
Looking ahead, attention will turn to delayed US economic data and another heavy earnings week. There will be key pointers on the US retail sector, with Walmart, Home Depot, and Target all reporting, while results from AI darling Nvidia will be heavily scrutinised when it releases results after the market close on Wednesday.
Elsewhere, European markets outperformed, rising 2.4%. In Asia the Hang Seng rose 1.3%. In China, monthly data on investment and production were slightly softer than expected. Fixed-asset investment declined 1.7% in the first ten months of the year, with that in October falling 11% year-on-year amid five straight months of contraction. Industrial production rose 4.9%, the slowest pace since early 2025, while retail sales rose 2.9% thanks to stronger holiday spending. New home prices were flat month-on-month. Electricity generation climbed 7.9%, likely reflecting demand from AI-related infrastructure projects.
Overall, the data suggest China entered the final quarter on a weakening trajectory, with government efforts to curb overcapacity and spur investment yet to gain full traction. While recent stimulus measures and easing trade tensions with the U.S. could support activity ahead, Beijing may need to do more to sustain its 5% growth target.
In Australia the ASX 200 fell 1.5% last week. Sentiment soured as rate-cut hopes faded following stronger-than-expected jobs data. Australia’s unemployment rate fell to 4.3% in October from 4.5% in September, suggesting the labour market remains resilient. This has prompted markets to pare back expectations for an early rate cut from the Reserve Bank of Australia. The minutes from the last meeting of the central bank are out this week, as are results from building products name James Hardie. Trading updates will be on offer at a host of AGM’s including Seek and ResMed.
The NZX 50 slipped 1.0% last week despite a standout 15% rise from Mainfreight following its interim result. The numbers were slightly soft but broadly in line with expectations, and management struck a confident tone on improving conditions in both New Zealand and Australia, with organic volumes and market share starting to recover.
PMI data told a similar story. The Business NZ–BNZ Performance of Manufacturing Index rose to 51.4 in October from 50.1 in September. It marked a fourth consecutive month in expansion and prompted the survey title: “Signs of Life.”
The biggest gains were in the areas one would expect to see first in a cyclical recovery – namely new orders and production. The PMI production index pushed up to 52.0 from 50.5 in September and is not that far below its long-term average of 52.7. New orders index rose to 54.9 in October, the highest level since August 2022. Demand is rising and it should mean that our manufacturing sector should be a help rather than a hindrance to GDP with a positive contribution in the third quarter.
In terms of the drivers, it could well be down to a combination of interrelated factors, including recent increases in residential building consents, monetary policy easing, and a lower NZD/AUD exchange rate. Employment is still lagging at 48.1, marginally up on September but the sixth consecutive month that labour is being shed in the sector. The labour market tends to lag changes in activity so we should get an improvement at some point here.
Labour market weakness should ensure that the RBNZ follows through with another rate cut at the end of this month. This is also while the services sector is struggling. The BNZ – Business NZ PSI for October was 48.7. Although this was 0.4 points higher than September, the sector remains entrenched in contraction, which has now been the case for 20 consecutive months. The downturn in the services sector has persisted and the October result was also still well below the average of 52.8 over the history of the survey.
The proportion of negative comments for October (54.1%) was down from September (58.0%) and August (59.6%). BNZ noted that negative comments received showed weak demand and reduced customer spending due to the economic downturn, cost-of-living pressures, and low confidence. Rising operating costs, delays, competition, and project cancellations are further reducing sales, slowing activity, and creating cashflow challenges.
There are some signs of stability in the retail sector, even if it is coming at a margin cost. The Warehouse Group updated today that first quarter sales rose 0.9% to $674.1 million, with same-store sales broadly stable. Sales at the red sheds rose 0.7% to $389.0 million, while those at Noel Leeming rose 0.7% to $230.7 million (although same store sales were down 1.6%). Group average selling prices declined 2.4% with the group having to discount to entice customers. The company announced a cost reset programme aimed at reducing the cost of doing business below 31% of sales and improving long-term profitability.
It’s another busy week on the corporate front, with Napier Port and Goodman Property Trust reporting results, and Precinct Properties, KMD Brands, A2 Milk, and Sky TV hosting annual meetings. There is also another dairy auction - prices have come off the oil in the past 6 months, and have declined in ten of the past twelve auctions. Still the sector overall has enjoyed some fertile conditions in recent years, and many Fonterra farmers also have a strong capital return ($3.2 billion tax free in total) to look forward to next year post the sale of the global consumer division.