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WEEKLY SUMMARY: Nasdaq the biggest loser from the Fed's “No Pivot”
Stocks fell after the Fed dashed market hopes for an impending pivot in monetary policy in the form of a pause or slower pace of rate hikes. Nasdaq was the biggest loser (-5.6%) while the Dow outperformed (-1.4%). This was the Nasdaq's worst week since January. Indeed, Tech stocks suffered as the fallout from a largely disappointing earnings season for bellwethers such as Facebook, Amazon and Microsoft continued. Wednesday’s FOMC announcement and Powell’s post-meeting press conference were the focus of the week. Stocks were little changed until the press conference took a hawkish turn. Notably, Powell stated that it is “very premature” to consider pausing rate hikes, and the S&P 500 Index finished the day down 2.50%. U.S. Treasury yields increased through most of the week, with short-term rates climbing more than yields on long-maturity bonds. The two-year U.S. Treasury note yield reached a 15-year high above 4.75% on Friday morning. In Europe, shares rose for a third week running. In the UK, the BoE increased its benchmark interest rate by 0.75 percentage point to 3%, the highest level since 2008, to contain inflation. China’s stock markets rallied (+5.3%) amid speculation that the country was preparing to relax its zero-tolerance approach to the coronavirus. Stocks in Brazil returned about 3.4% after Lula won the Presidential election. The dollar was volatile but ended the week unchanged. Cryptos soared with bitcoin reclaiming $21k.
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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.