The markets finished another strong week fueled by more positive earnings news and a CPI report that shows inflation is still under control. Another rate cut from the Fed is likely next week, which is helping tech, cyclicals and small-caps lead U.S. equities higher.
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Market Moves
Weekly Market Snapshot:
- S&P 500: +1.9% – fueled by healthy corporate earnings growth and optimism that the Fed is on track to continue cutting rates.
- Nasdaq Composite: +2.2% – tech continues to lead as the resilient U.S. economy narrative remains intact.
- Russell 2000: +2.5% – lower interest rates tend to benefit small-caps more than large-caps.
- VIX: 16.4 – after a bout of volatility last week stemming from regional bank concerns, market calm returned.
- Gold: -2.9% – a sharp pullback in safe haven trades as regional bank and inflation fears subsided.
- 10-Year Treasury Yield: 4.00% – hovering at times below the key 4% level for the first time since April ahead of an anticipated Fed rate cut next week.
Drivers:
Worries around a lack of data transparency due to the government shutdown were eased following a tame September CPI report. Earnings momentum has been steady. Tariff uncertainties are being kept in view, but have not been driving investment decision making.
Economic Highlights
A couple of the notable themes that stood out this week:
- The U.S. inflation rate rose to 3% in September, its highest reading since January, but ended up coming in below expectations.1 The core inflation rate ticked down 0.1% from last month and helped soothe market fears that tariffs were having a larger effect on consumer prices.2
- The government shutdown is delaying the latest non-farm payroll report. Alternate data, including continuing jobless claims and ADP employment, continue to show a labor market that is cooling quickly. Markets aren’t reacting for now, but it could eventually impact equity prices if the trend continues.
- Japan’s latest inflation data could make next week’s Bank of Japan meeting an interesting one.3 Prices are up 2.9% year-over-year and could push the central bank to hike rates after a year of stubbornly high inflation. New Prime Minister Sanae Takaichi, however, is a policy dove which makes a rate increase unlikely.
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The Week Ahead
A few themes to watch next week:
- The Fed, the European Central Bank, the Bank of Japan, and the Bank of Canada are all going to set policy rates. Of this group, only the Fed is expected to cut. Much of the heavy lifting globally on inflation control is already done, but recent upticks in both Japan and Canada are worth watching.
- It’s going to be a major earnings week with reports coming from Microsoft, Apple, Alphabet, Meta Platforms, Amazon, Visa, Mastercard, and ExxonMobil. The Q3 earnings season thus far has been mixed and results from the tech heavyweights could determine if the current bull run has another leg.
- President Trump and Chinese President Xi will meet on October 30th to talk trade ahead of the scheduled November 1st tariff increase. The two sides have traded verbal jabs over the past couple weeks with little sign of meaningful progress on a trade deal so far.
In Summary
Markets ended the week on an upbeat note with quarterly earnings looking good and inflation appearing to be under control. Central banks and earnings from many of the magnificent 7 names will take center stage next week with positive momentum fueling the bulls.
Stay tuned for next Monday’s newsletter for your next update on market moves, economic shifts, and actionable insights.
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