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WEEKLY SUMMARY: Bitcoin & Bullion Jump, Stocks & Bonds Dump
Geopolitical concerns, tough talk from Fed officials, and a rise in long-term bond yields to 16-year highs appeared to weigh on sentiment and drove the S&P 500 Index to its biggest weekly decline in a month. The Nasdaq fared worst among the major benchmarks and nearly moved back into bear market territory, ending the week 19.9% below its early-2022. Growth stocks lagged their value counterparts. Europe, Japan and China equities dropped sharply over the week. Stocks started the week on a strong note helped by limited negative news flow regarding the Middle East over the weekend. Deepening tensions later in the week appeared to drain the gains, however. In particular, shares fell sharply on Thursday afternoon, following reports that a U.S. Navy destroyer had shot down a cruise missile apparently headed toward Israel. Reports of a drone attack on a U.S. base in Iraq also seemed to weigh on sentiment. “Fedspeak” that was arguably less dovish than recent remarks from policymakers may have also been at work. In particular, markets pulled back sharply after Powell stated that he saw no signs that the current stance of Fed policy would push the economy into a recession. Some upside economic surprises (retail sales, jobless claims) may have reinforced worries that rates would remain “higher for longer.” The yield on the US 10-year note nearly hit 5% intraday on Friday. Gold surged to nearly $2,000 while Bitcoin jumped towards $30k. Oil rose despite US easing sanctions on Venezuela.
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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.