Black Friday off to a strong start, healthcare sector outperforms broader market

Key Concepts

Black Friday & Cyber Monday Sales: Significant consumer spending events, with a strong online component and increasing reliance on mobile purchasing.
Retail Performance: Mixed results for retailers, with some standouts like Kohl's and Abercrombie, while others like Target lag.
Buy Now, Pay Later (BNPL): Continued popularity as a budgeting tool and for facilitating impulse purchases.
Healthcare Sector Performance: Strong gains in November, driven by policy clarity, steady earnings, and GLP-1 momentum, with drug makers and device makers outperforming insurers.
GLP-1 Drugs: A key driver for pharmaceutical companies like Eli Lilly, with significant market potential.
AI Revolution: Ongoing technological shift with massive demand for AI chips, particularly from Nvidia, and potential for broad enterprise adoption.
Value Stocks: Stocks trading at a low price relative to their earnings, assets, or cash flow, offering potential upside.
Value Traps: Stocks that appear cheap but continue to decline due to deteriorating business fundamentals.
Portfolio Management: Strategies for year-end adjustments, including tax planning, diversification, and direct indexing.
Alternative Assets: Investments in private markets, requiring careful due diligence.

Market Overview and Black Friday Sales

The US trading day is 30 minutes in, with major averages showing gains: the Dow is up nearly 150 points (about 0.3%), the S&P 500 is up about 0.2%, and the Nasdaq is up about 0.25%. While the quarter-to-date performance has been mixed, the month of November has seen a downturn for the Nasdaq, potentially breaking its seven-month winning streak due to weakness in technology stocks. The S&P 500 is also feeling this pain but to a lesser extent due to lower tech leverage, and the Dow is poised to fall for the month as well, though by a smaller margin.

Within the Nasdaq 100, there's a dispersion of performance. While Nvidia is down 14% and Amazon and Microsoft have seen declines, Google (Alphabet) has experienced a significant rally, reaching new record highs and leading the "Magnificent Seven" year-to-date. Broadcom has also shown notable strength.

Black Friday Sales: Consumer spending is a key focus. Adobe tracks these sales and expects total spending to reach $1.4 trillion for the first time, with the majority occurring during Black Friday and Cyber Monday. VC Pandy, Adobe's lead analyst, anticipates $253 billion in spending for the season, representing a 5.4% year-over-year growth. Consumers are leveraging online channels for the best discounts, perceiving online spaces as offering more favorable pricing. Thanksgiving Day saw strong online spending, exceeding $6 billion.

Consumer Behavior Shifts: A significant trend is the surge in mobile spending, which accounted for over 61.6% of online sales on Thanksgiving. This shift is attributed to the post-COVID era, where consumers, instead of physically shopping after meals, are now making impulse purchases via their phones. This "one-touch" purchasing behavior drives spend velocity, especially for retailers optimized for mobile.

Buy Now, Pay Later (BNPL): BNPL continues to be a popular financing option, with an anticipated $20 billion to be processed through BNPL services this season. Consumers are using it to manage budgets amidst cost-of-living pressures and for impulse purchases facilitated by mobile commerce.

Product Trends: In toys, Lego demonstrates durability due to its relevance across age groups. Hot trend items include Leubu and Bluey Toys, requiring consumers to purchase them earlier due to high demand. Electronics, such as the iPhone 17 and health tracking devices like the Aura Ring, are also popular. Supply for these electronics is generally stable, with heightened demand expected around Black Friday and Cyber Monday promotions.

Consumer Sentiment: Despite concerns about a K-shaped economy and low consumer confidence, the data suggests consumers across income spectrums are utilizing the online space for its choice and competitive pricing. Major shopping days like Black Friday are perceived as opportunities to secure the best prices, driving growth even with early October spending.

Healthcare Sector Performance

The healthcare sector has been a standout performer in November, leading all S&P 500 sectors with a nearly 10% gain. This outperformance is attributed to policy clarity, steady earnings, and strong momentum from GLP-1 drugs, positioning the sector well for 2026.

Drivers of Outperformance: Jared Holtz, healthcare equity strategist at Nuo America, notes that the recent gains are partly due to money flowing out of large-cap tech and into other sectors. While significant fundamental changes within healthcare might not have occurred, increased comfort with the regulatory environment is a factor.

Subsector Performance: Drug makers and device makers have performed well, while insurers and managed care have lagged. This divergence is linked to:

Insurers/Managed Care: Uncertainty surrounding exchange subsidies and consistently strong utilization of medical services, which benefits providers but can pressure managed care companies that pay for these procedures.
Drug Makers/Device Makers: Strong utilization and the launch of new products, including GLP-1s and oral obesity treatments, are driving growth.

ACA Subsidies: The prospect of an extension for Affordable Care Act (ACA) subsidies is considered likely due to political considerations, with a potential extension of one to two years.

Eli Lilly's Momentum: Eli Lilly's ascent to a trillion-dollar valuation is largely driven by its GLP-1 drugs. While near-term momentum may be priced in, the upcoming launch of its oral obesity treatment is a key catalyst. The market for these drugs is seen as more consumer-driven than therapeutic.

Competition in Obesity Market: Novo Nordisk is expected to be a significant competitor to Eli Lilly in the oral obesity market, potentially capturing 30-40% of the market. Other large pharma and biotech companies have products in development, but the near-term market is anticipated to be a two-player dynamic between Lilly and Novo.

Trending Tickers and Investment Strategies

Tillray Brands: Is implementing a 1-for-10 reverse stock split, effective December 1st. Shares will trade on a split-adjusted basis starting December 2nd.

SanDisk: Has been added to the S&P 500, replacing Interpublic Group. This inclusion is expected to drive demand from index funds.

Retail Stocks: Amazon, Walmart, and Target are seeing gains as the holiday shopping season intensifies. The Thanksgiving weekend is projected to see a record number of shoppers, with nearly 187 million people expected to shop from Thanksgiving Day through Cyber Monday. Several retailers have raised their full-year outlooks, indicating optimism for the holiday quarter.

Value Investing: Yahoo Finance's Jared Blickery discusses "value stocks" as a "clearance aisle" for investors.

Definition: A stock priced low relative to its earnings, assets, or cash flow, offering potential upside if expectations improve.
Value Traps: Stocks that appear cheap but continue to decline due to deteriorating business fundamentals (e.g., falling earnings, shrinking industry, potential dividend cuts).
Yahoo Finance Screener: A tool to identify undervalued growth stocks using filters like trailing P/E ratio (0-20), PEG ratio (below 1), EPS growth (at least 25% above one year ago), and listing on major US exchanges.
Dividend Yield: While attractive, a high dividend yield can sometimes signal an expected dividend cut.
Examples:
- Pfizer: Considered a potential value trap due to its stock price decline after its COVID business waned, despite a high dividend. Cash flow is tighter as it invests in its pipeline.
- Ford: A cyclical value stock with a significant dividend yield, but profits are pressured by EV losses and a choppy auto cycle. Its negative PEG ratio suggests expected earnings shrinkage.
Key Watchlist Items for Value Stocks: Earnings results and guidance, dividend changes, performance relative to benchmarks (S&P 500, Nasdaq), and interest rate expectations.

Top Tech Stocks for the AI Revolution

Dan Ives of Wedbush discusses his top 10 tech stock picks for the AI revolution, arguing that the market is not in an AI bubble.

AI Market Dynamics:

Demand: Demand for Nvidia chips is exceptionally high, with a 12:1 demand-to-supply ratio. Only about 3% of US companies and less than 1% globally have adopted AI, indicating the early stage of the revolution.
Comparison to 90s Bubble: Unlike the late 90s, where companies had minimal business models and were valued on revenue, today's tech giants have trillions in balance sheets and significant free cash flow. This is considered a "true fourth industrial revolution" with broad enterprise use cases.

Top Tech Picks:

Nvidia: Described as the "godfather of AI," with underestimated earnings potential due to strong demand from the US, sovereign nations, and potential re-entry into the China market. Ives maintains a $250 price target for Nvidia.
Palantir: Positioned as the "messy of AI," with strong use cases and no direct competitors in its niche. Ives believes it could become a trillion-dollar company in two to three years, despite its current valuation.
Tesla: Viewed as a "physical AI" company, not just a car manufacturer. The focus is on robotics and autonomous driving, with a base case of $600 and a bull case of $800.

Companies Not on the Top 10 List (but still positive): Salesforce, Amazon, and IBM are mentioned as being part of Ives' broader AI 30 ETF, with positive outlooks but not making the elite top 10.

Intel: Now part of the AI revolution due to government backing and Nvidia's influence, Intel faces an uphill battle in innovation but is in a better position than a year ago.

OpenAI's Entrenchment: The foundational role of companies like Oracle and Microsoft in the AI ecosystem, particularly with OpenAI, is seen as a positive, not a negative, indicating the early stages of the AI game.

Year-End Portfolio Moves and Financial Hygiene

Daniel Graph of Creative Planning provides advice on preparing finances and portfolios for the new year.

Tax Planning:

Year-End Adjustments: A popular time for portfolio adjustments and income management.
SALT Deductions: Changes to State and Local Tax (SALT) deductions may lead to more itemized filers in 2025.
Charitable Giving: High-income earners should consider doubling up on charitable giving in 2025 due to potential limits on deductions in 2026.

Portfolio Construction and Diversification:

Diversification: Essential, especially given the strong performance of tech stocks over the past decade. International stocks have performed well this year, and small and midcap stocks may see similar gains if interest rates continue to decline.
Indexing: A solid strategy for average investors to gain market exposure over the long term, as advocated by Warren Buffett.
Direct Indexing: A growing trend where individual stocks are used to track an index (e.g., S&P 500, Russell 3000) for greater tax efficiency. This allows for trimming losses to manage taxes and letting winning names run. It's also useful for managing concentrated positions in popular stocks like Nvidia or Amazon.

Alternative Assets:

Balanced Approach: While private markets offer opportunities, caution and due diligence are crucial.
Private Credit: Potential cracks are beginning to show in some private credit spaces, emphasizing the need for thorough research.

Conclusion

The market is showing mixed signals, with a strong Black Friday sales outlook contrasting with a challenging month for tech stocks. The healthcare sector is a bright spot, driven by innovation and policy clarity. Investors are advised to consider value stocks, but with caution to avoid value traps. For year-end financial planning, tax optimization, diversification into areas like small and midcap stocks, and potentially direct indexing are key strategies. Alternative assets, particularly in private markets, require careful due diligence. The overarching theme is the early stage of the AI revolution, which continues to drive significant investment and innovation.