Markets Blog
David Matzko, LPL Research
Major indexes recorded yet another weekly advance, overcoming choppy tech trading and a mid-week rotation which benefited economically sensitive sectors and small cap stocks. Additionally, after starting on a positive note last Friday, third quarter earnings season rolled on with 43 stocks from the S&P 500 reporting, highlighted by banks and financial companies. Treasury yields slipped as the rates outlook continued to fluctuate following stronger-than-expected economic data, while overseas, the Eurozone received another rate cut as expected. Oil prices slumped on the latest developments from the Middle East, while the dollar and gold climbed higher.
Index Performance
U.S. and International Equities
U.S. Equities: U.S. stocks continued to advance, pushing the S&P 500 and Nasdaq Composite’s current streak for weekly gains to six in a row. Earnings results and corporate news flow stepped into the spotlight for most of the week, with most key macro data on Thursday. The benchmark S&P 500 added 0.9%, the Nasdaq gained 0.9% amid somewhat choppy trading, and the Dow Jones Industrial Average advanced 1.0%. Value stocks outperformed growth, while small caps were the week’s standout, rising 2% after an intra-week rotation.
After the first batch of big banks kicked off earnings season on a positive note last Friday, a total of 43 S&P 500 constituents reported this week, highlighted by more financial names and another wave of big banks. Financials was one of the top-performing sectors on the week, as Morgan Stanley (MS), Goldman Sachs (GS), Bank of America (BAC), and Citigroup (C) joined their competitors’ reports from Friday by topping earnings expectations, sending shares higher. Technology stocks experienced somewhat choppy trading after international earnings reports. Semiconductor stocks slipped after Dutch chipmaking giant ASML Holding (ASML) slashed 2025 guidance, but the sector quickly bounced back as Taiwan Semiconductor (TSM) beat estimates, while, separately, NVIDIA (NVDA) shares displayed resilience during an intra-week rally. Investors briefly rotated away from big tech names on Wednesday, sending more economically sensitive areas of the market higher. Small caps were the most notable beneficiary as the Russell 2000 neared recent highs. On the macro front, resilient consumer spending in September powered retail sales results above forecasts, according to Thursday’s release, which led to more fluctuation in rate-cut bets, placing downward pressure on stocks for the day.
International Equities: Across the pond, the STOXX 600 benchmark equities gauge pared mid-week losses, rallying around the first back-to-back rate cut from the European Central Bank (ECB) in 13 years. The central bank cut rates by another 0.25%, as ECB President Christine Lagarde signaled that policy makers’ focus has shifted from inflation to economic growth concerns. Earnings were also a point of focus in European markets; however, results weren’t the bright spots they were in the States. Luxury stock reports disappointed investors again, missing earnings estimates as weak demand from China continues to weigh on sales and revenue for companies including Christian Dior and French behemoth LVMH.
Economic updates in China remained top of mind for global investors, as multiple press briefings from state ministries drew attention. Both the finance ministry and the housing ministry hosted briefings over the last seven days, announcing the latest stimulus measures, including measures to stabilize the property market — although both failed to excite market-watchers. Chinese equities slumped after the press conferences, but markets rebounded on Friday to earn a weekly gain after third quarter gross domestic product (GDP) arrived better than expected and central bankers announced further reductions to banks’ required reserve ratio. Hong Kong closed the week in the red. Elsewhere, Japan declined lower amid mixed macroeconomic data and mid-week tech weakness, while Taiwan rallied on the back of positive results from TSM. South Korea and India ended the week lower.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg U.S. Aggregate Index ended the week little changed, despite Thursday’s jump in yields. The rate-sensitive two-year yield added one basis point to end near 3.97%, while the 10-year yield traded two basis points lower near 4.08% on Friday. Yields trended lower in muted trading after returning from Monday’s holiday for Columbus Day and Indigenous People’s Day, as markets continued to assess the rates outlook. Thursday’s retail sales data came in broadly stronger than expected, signaling the economy remains on solid footing with a cushion for a slow rate cut path for the Fed. Retail sales data paired with better-than-expected initial claims data and a rise in the Philadelphia Federal Reserve’s (Fed) monthly manufacturing index subsequently sent yields higher as markets once again repriced out rate cut expectations. Wall Street chatter around slower Fed easing crept into discussions, but markets continue to price in a very strong chance of a Fed cut at the November and December meetings — albeit slightly less than when the week started. To end the week, the market consolidated as participants grew accustomed to a slightly less dovish Fed and fairly consistent stronger-than-expected economic data.
Commodities and Currencies: The Bloomberg Commodities Index traded lower on the week. West Texas Intermediate (WTI) crude prices slumped after their recent rally, coming under pressure from Israel’s agreement to not target oil facilities or nuclear installations for any retaliatory measures. Additionally, China continued to be a focal point for crude prices, as prices fell on concerns China’s economic stimulus would not boost consumption for the world’s largest crude importer. Gold extended its record-breaking run as the bullion blew past $2,700 per ounce, continuing to find support from geopolitical tensions, U.S. election uncertainties, and this week, a fall in Treasury yields. Silver prices tracked the gold rally with a weekly gain of its own, while copper ended lower as doubts over the effectiveness of Chinese property market stimulus lingered following this week’s small-scale support. In currencies, the U.S. dollar logged its third straight weekly gain as continued shifting in expectations toward slower Fed easing propelled the greenback higher. The Japanese yen ended the week slightly higher, and the euro weakened against the dollar following Thursday’s ECB rate cut.
Economic Weekly Roundup
A Reversal in Real Time. The real estate market is experiencing a reversal as activity in single-family homes is recovering while multi-family projects are weakening. For the second consecutive month, the trajectory of construction projects within the real estate market reversed course. Despite a recent uptick in mortgage rates, rates are significantly down from a year ago and builders plan to capitalize on the improving interest rate environment by ramping up single-family projects. Permits, a leading indicator of future construction, are trending lower for both single-family and multi-family units.
As builders ramp up single-family projects, investors could expect some easing in home prices as available supply increases. However, the impacts from more single-family home construction will take time to work through the system. Residential investment should add to economic growth for the next few quarters.
Discretionary Spending Saved September. September retail sales foreshadowed another quarter of above-trend economic growth. Further, consumers had an insatiable appetite for eating out as discretionary spending rebounded. Topline September retail sales rose 0.4%, month-over-month after rising 0.1% in August. Restaurant spending rebounded in September, illustrating a consumer with an appetite for eating out. Competitive grocery pricing attracted more consumers last month, causing grocery store sales to spike. In a separate report, initial unemployment claims fell after a temporary rise from weather impacts. Investors should focus more on continuing claims, which rose back to recent highs and implies that jobs are harder to get, as the Conference Board data validate.
Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend. Looking ahead, investors need to monitor any signs that the unemployed are finding it more difficult to earn a paycheck. Our baseline remains that the Fed will likely cut a quarter of a percent in both November and December.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: Leading Index (Sep)
Tuesday: Philadelphia Fed Non-Manufacturing Activity (Oct), Richmond Fed Manufacturing Index (Oct), Richmond Fed Business Conditions (Oct)
Wednesday: MBA Mortgage Applications (Oct 18), Existing Home Sales (Sep), Federal Reserve Beige Book release
Thursday: Chicago Fed National Activity Index (Sep), Initial Jobless Claims (Oct 19), Continuing Claims (Oct 12), S&P Global U.S. Manufacturing PMI (Oct preliminary), S&P Global U.S. Services PMI (Oct preliminary), S&P Global U.S. Composite PMI (Oct preliminary), New Home Sales (Sep), Kansas City Fed Manufacturing Activity (Oct)
Friday: Durable Goods Orders (Sep preliminary), Durables ex Transportation (Sep preliminary), Capital Goods Orders Nondefense ex Aircraft (Sep preliminary), Capital Goods Shipments Nondefense ex Aircraft (Sep preliminary), Bloomberg U.S. Economic Survey (Oct), University of Michigan Sentiment Report (Oct final), Kansas City Fed Services Activity (Oct)
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