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WEEKLY SUMMARY: S&P500 & Nasdaq post worst week since March
The Fed held its September meeting and the message from Jay Powell was clear: they will continue to keep rates elevated until inflation moves more convincingly toward 2.0%. The Fed held rates steady at 5.25% - 5.5% at this meeting but kept the option of an additional rate hike on the table, maintaining its outlook for a peak fed funds rate of 5.6%. The S&P 500 and the technology-heavy Nasdaq Composite reacted negatively, dropping 2.9% and 3.6% respectively. That marked the third straight negative week and worst weekly performance since March for each. As Vanda Research notes, inflows into the artificial intelligence (AI) sector continue to decline. The VIX jumped back above 17 on the week. Bond yields surged after the central bank forecasted one more rate hike for 2023. The pan-European Stoxx 600 index lost mearly 1,6% for the week — its worst performance since mid-August. Within Fixed Income, the benchmark 10-year Treasury yield popped to its highest level since 2007 this week. Meanwhile, the 2-year rate touched its highest level since 2006. Concern also grew around a government shutdown, which could dent consumer confidence and slow down the economy further. House Republican leaders sent the chamber into recess on Thursday. The dollar rallied on the week (up for the 8th week of the last 9)... Oil prices caused lots of excitement intraweek but ended unchanged with WTI hovering around $90.50. Bitcoin was noisy on the week but basically closed unchanged at around $26,500...
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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.