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STOCKS SOARED, COMMODITIES & BONDS DIP
The main US equity indices erased much of the previous week’s losses on optimism that the Fed will be able to curb inflation without tipping the economy into a recession. Communication services, consumer discretionary, and IT sectors outperformed while Utilities underperformed. On the macro side, ISM services activity in June came in modestly above consensus estimates but indicated a continuing slowdown in growth. Friday’s US payrolls report showed employers added 372,000 nonfarm jobs in June, well above consensus expectations of around 270,000. YoY earnings grew by 5.1%, marking the 3rd monthly deceleration from March’s recent peak of 5.6%. On Wednesday, Fed June meeting minutes were hawkish, bolstering investors’ expectations for a higher terminal Fed funds rate, supporting higher yields across the curve. U.S. Treasury 10-year notes rose to roughly 3.10% on Friday. The 2-year/10-year segment of the Treasury yield curve inverted. In Europe, stocks advanced after 3 consecutive months of losses while Germany's trade balance showed a deficit — the 1st since 1991— as exports fell unexpectedly. Boris Johnson announced his intention to resign after more than 50 ministers and several Cabinet members stepped down in protest at his handling of a series of scandals that have rocked his administration. In Asia, Japan stocks gained while Chinese stocks eased as rising covid cases and elevated geopolitical tensions hurt sentiment. Global commodities were crushed again while the dollar and cryptos gained.
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Most of US equities indices rose to record highs, as investors wagered that a “red sweep” (Republicans winning Presidency, Senate and Congress) would result in faster earnings growth, looser regulations, and lower corporate taxes. The small-cap Russell 2000 Index surged 8.57% for the week but was the sole benchmark to remain out of record territory. Meanwhile, the Dow Jones hit 44.000 for the first time while the S&P 500 closed just shy of 6,000, up 4.7% for the week, its best weekly gain in almost a year. On Thursday, the Fed announced a 25bps rate cut, its first easing move since cutting rates by 50 basis points in mid-September. In terms of economic data, the October ISM services sector activity came in at 56.0, well above expectations and the best reading since August 2022. U.S. Treasuries generated positive returns heading into Friday, as yields largely ended lower than where they ended the previous week.