U.S. equities fended off notable semiconductor weakness to finish the week positive, with small-caps outperforming due to financial sector strength. The Russell 2000 index rallied nearly 2%, while the S&P500 and Nasdaq Composite each gained less than 1%.
RECAPPING LAST WEEK
U.S. equities fended off notable semiconductor weakness to finish the week positive, with small- caps outperforming due to financial sector strength. The Russell 2000 index rallied nearly 2%, while the S&P500 and Nasdaq Composite each gained less than 1%. Nine of eleven S&P500 sectors posted gains, and while utilities were the best performer, factor performance was far from defensive.
The PHLX Semiconductor index plunged more than 5% early last week after reports
emerged that U.S. officials may further limit the sale of advance AI chips to designated countries. Also weighing on the sector was a negative earnings report from Dutch chip equipment maker ASML Holding. However, some analysts downplayed fears of a demand slowdown, citing temporary overcapacity at chip factories. The energy sector struggled after crude oil futures tumbled 8.8%. A looming global oil surplus and concerns over China’s waning growth prospects overshadowed potential supply disruption risks from Middle East conflicts.
While other commodities seemed unfazed, the strength of the U.S. dollar acted as a headwind to crude. Gold futures jumped more than 2% to reach a fresh record high near $2,735 per ounce. U.S. Treasury yields were slightly lower, rebounding from steeper declines after stronger-than-expected retail sales data and a drop in jobless claims. Manufacturing activity was mixed—industrial production fell in September, while the Philly Fed survey revealed expansion in that region. U.S. homebuilder confidence edged higher this month, while housing starts and building permits fell despite a pickup in single-family home construction. Overall, the U.S. economy’s resilience reinforced expectations for only a 25-basis point rate cut from the Federal Reserve in November.
Overseas, China’s equity markets saw a nauseating amount of volatility as investors tried to make sense of the latest economic data and government stimulus proposals. The country’s trade data for September missed the mark, while tame inflation pointed to continued weak domestic demand. China’s central bank moved to support markets after GDP came in at the lower end of its annual growth goal—at +4.8% for the first nine months of 2024. The bank announced plans to inject 800 billion yuan ($112.38b) for companies to buy back shares, among other measures. Elsewhere, the European Central Bank lowered interest rates for the third time this year, with another quarter-point cut expected by year-end. The UK’s annual headline inflation rate dropped sharply last month, to 1.7% from 2.2%, supporting expectations for a November rate cut. Last of all, Japan’s core inflation slowed in September but remained above the central bank’s 2% target, indicating that further interest rate hikes are on track.
THE WEEK AHEAD
U.S. corporate earnings reports will remain in focus, while global flash PMI surveys will provide a glimpse into manufacturing and services sector trends early in Q4. Geopolitical tensions remain high—investors await any Israeli reaction to Iran’s missile attacks. On the economic calendar, the Bank of Canada makes its interest rate decision on Wednesday, and there is speculation for a 50-basis point cut after the latest CPI data.
There are two meetings of global finance leaders this week, the first being the annual International Monetary Fund and World Bank gathering in Washington D.C., where the upcoming U.S. Presidential election will be a top discussion point. The second is the BRICS summit in Russia—the host nation will look to convince other emerging economies to build an alternative international payments system to counter the U.S. dollar’s dominance in global trade. In the U.S., the economic agenda is light, with housing data and durable goods orders the most notable reports. Investors will be mindful of earnings results from the likes of Tesla, UPS, Boeing, Texas Instruments, IBM, and others. Overseas, China will stay in the spotlight for any potential new announcements on stimulus policies. The People’s Bank of China is expected to lower its loan prime rates by 20 basis points to match cuts made to the 7-day reverse repo rate made last month. Finally, Japan’s Tokyo CPI will be released on Thursday evening and will be important for gauging the Bank of Japan’s rate hike timing.
(source: Schwab)
