Most U.S. equity indices finished lower as investors digested a slew of mixed economic and corporate earnings reports. The S&P500 and Nasdaq Composite indices each fell more than 1%, while the Russell 2000 index was flat. Nine of 11 S&P500 sectors lost ground, with technology sinking nearly 3% after several companies reported rising costs related to artificial intelligence development.
RECAPPING LAST WEEK
Most U.S. equity indices finished lower as investors digested a slew of mixed economic and
corporate earnings reports. The S&P500 and Nasdaq Composite indices each fell more than 1%, while the Russell 2000 index was flat. Nine of 11 S&P500 sectors lost ground, with technology sinking nearly 3% after several companies reported rising costs related to artificial intelligence development.
Crude oil prices initially plunged after Israel’s limited retaliation on Iran but recovered
to end the week with only a 3% loss. U.S. Treasury yields rose despite disappointing GDP and jobs data. The first estimate of third-quarter GDP came in at +2.8%, missing the 3.1% estimate due to higher imports and a drop in housing investment. Consumer spending remained solid, however, increasing 3.7%, versus 2.8% in Q2. The Boeing strike and hurricane impacts were major factors in the paltry 12k rise in non-farm payrolls for October. The unemployment rate held steady at 4.1%, but the prior two months of job gains were revised lower by 112k, consistent with slowing labor market trends. Job openings also fell more than expected, reaching the lowest levels since January 2021. The employment data all but solidified a 25-basis point rate cut at the upcoming FOMC meeting and indicates a high probability of a similar move in December.
In other news, the PCE price index increased 0.2% MoM and 2.1% YoY in September, nearing the Fed’s 2% target inflation rate. Core PCE ticked up slightly to +2.7% YoY. U.S. manufacturing activity contracted again in October, with the ISM PMI reading falling to a 2024 low of 46.5. On a positive note, consumer confidence saw its biggest jump since March 2021, despite uncertainty around the labor market and presidential election.
Overseas, the Bank of Japan kept interest rates unchanged while declaring that it remains on track to reach its inflation target. However, the country’s ruling party lost its parliamentary majority in last week’s elections, which may make it more difficult for the central bank to raise rates further. In China, a sharp drop in industrial profits was offset by a return to expansion for the manufacturing sector, according to the official government and Caixin PMI surveys. Europe’s economy defied recession expectations, with Q3 GDP expanding 0.4% across the Eurozone and 0.2% in Germany. EU inflation rose more than expected in October, with CPI increasing 2% YoY. Finally, British stocks, bonds, and the pound tumbled after the Labor government unveiled a budget that stoked concerns of more borrowing and higher inflation due to fiscal expansion.
THE WEEK AHEAD
All eyes will be on the U.S. elections this week, but investors will also have several central bank interest rate decisions to keep in mind. The Federal Reserve is expected to lower rates by 25 basis points on Thursday, as most of the recent data has shown an economy that is holding up but slowing gradually.
Depending on the timeliness of Tuesday’s election results, the Fed may have more to say about its future policy path. Earnings season is starting to wind down, but a few reports worth watching this week include Palantir, NXP Semiconductors, Super Micro Computer, Arm Holdings, and Qualcomm. The rest of the U.S. economic calendar consists of 10- and 30-year Treasury auctions, ISM services PMI, factory orders, consumer credit, and November’s preliminary consumer sentiment.
Overseas, the Bank of England is likely to lower rates by a quarter point on
Thursday as well. However, future rate cuts may be on hold given the reaction to the government’s budget proposal. The Reserve Bank of Australia kept rates unchanged in September and are expected to do the same Monday evening. Estimates that inflation will persist near 4% for the next year will likely keep the RBA in a holding pattern.
Last of all, China releases trade figures and the first full-month inflation data since the massive stimulus was announced in September.
