Tech Earnings, Fed Signals, and a Tariff Truce Steer Markets

The major indices touched record highs earlier in the week, but lost momentum after the Fed’s hawkish turn put future rate cuts in doubt. Big tech earnings results were mixed, but emphasized the desire to keep spending on AI development. Market leadership was restricted mostly to just tech stocks and overall breadth looked much worse than the S&P 500 would suggest.

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Market Moves

Weekly Market Snapshot:

• S&P 500: +0.7% – The market averages were pulled higher by outperformance in mega-cap tech.
• Nasdaq Composite: +2.2% – Tech gains continue to mask broadening weakness elsewhere in U.S. equities.
• Russell 2000: -1.4% – Rate-sensitive small-caps were disappointed by the Fed’s lack of commitment to future rate cuts.
• VIX: 17.4 – Equity volatility ticked up modestly but remains well within its traditionally normal range.
• Gold: -2.5% – Stabilizing around the $4,000 level as risks begin to balance out.
• 10-Year Treasury Yield: 4.08% – Yields are back on the rise after Powell failed to confirm that a December rate cut was a done deal.

Drivers:

The Fed cut rates by 0.25% to a range of 3.75–4.00%.¹ But a lack of data transparency due to the government shutdown kept its future rate path open-ended. A heavy Q3 earnings slate and a U.S.–China trade agreement lifted equities, but Fed policy expectations continue to drive the market.

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Economic Highlights

A couple of the notable themes that stood out this week:

• The Fed decided to cut interest rates by a quarter-point, as expected, but also announced it was stopping its balance sheet reduction on December 1st. By doing this, the central bank will no longer be pulling liquidity out of the economy. Traditionally, that’s been a bullish catalyst for equities.

• Q3 earnings report from the Magnificent 7 companies confirmed two things: 1) cloud growth is still strong and 2) they’ll keep spending a lot of money on AI development. Market reaction, however, was mixed. Amazon and Google saw big gains, but Meta Platforms fell 13% for the week on concerns that it’s spending too much money.
• The U.S. and China reached a trade agreement during their meeting in South Korea this past week.² China agreed to ease restrictions on rare earth metal exports, a move the Trump White House had long pushed for. In exchange, the U.S. reduced the tariff rate related to fentanyl from 20% to 10%, although many tariffs still remain in place.
• The European Central Bank decided to keep its benchmark interest rate unchanged this past week, but the Bank of Canada chose to cut by a quarter-point.^3/4 There’s evidence in both cases that economic challenges are growing. Eurozone economic growth is still relatively flat, while Canada is dealing with rising unemployment.

The Week Ahead

A few themes to watch next week:

• The Labor Department plans to release the October jobs report on Friday, November 7, but a prolonged government shutdown could delay it. The September data remains pending. We will, however, get the ADP employment data, which measures private sector job growth. This will be important not just because it’s the only labor market data we’re getting, but because that number has shown negative job growth in three of the past four months.
• The Q3 earnings season begins winding down, but we’ll still get reports from McDonald’s, Pfizer, Uber and Palantir. Quarterly earnings, thus far, have been good, not great, but nothing yet to indicate that a major slowdown is at hand.
• Momentum may be building to end the government shutdown this week. The potential expiration of SNAP benefits and ongoing disruptions at airports could finally be pushing Congress towards reaching a resolution sooner than later. The markets haven’t reacted much to events in Washington, but could start to if this becomes the longest shutdown in history.

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In Summary

Markets are still dealing with expectations without a lot of the government economic data it usually relies on. The Fed’s statement this past week reflects this. Without firm information to work with, we may soon see the markets turn a little more cautious.

Investors continue to mostly ignore the impact to GDP from the government shutdown and seem content with steadiness in the three major indicators: GDP growth, unemployment, and inflation.

Stay tuned for next Sunday morning’s newsletter for your latest updates on market moves, economic shifts, and actionable insights.

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