Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
US equities were higher for the second straight week, lifted higher by strong earnings and higher-than-expected consumer spending growth. For the week, the Dow Jones Industrial Average rose by 5.7%, the S&P 500 increased by 4.0%, and the Nasdaq Composite ended the week 2.3% higher. The 10-year U.S. Treasury yield moved lower throughout the week after hitting 4.30% last Monday. The yield on the 10-year note hit a low of 3.9% for the week on Thursday, before rebounding to 4.01% on Friday. Oil prices rallied amid speculation that OPEC and its allies may cut production further to support prices, while global supply remains tight. The price of West Texas Intermediate (WTI) crude ended the week 3.4% higher, trading near $88 per barrel. The U.S. dollar had weakened for five straight sessions through Wednesday before firming a bit near the end of the week, ending down 1.2% for its second consecutive weekly drop. Gold was slightly lower, dropping 0.7% for the week.
Despite significant volatility last week in the form of multiple earnings disappointments, financial markets remained resilient, capping the week with a Friday rally that drove the S&P 500 just above the 3900 level for the first time in a month. Domestic financial markets seemed to take solace in the notion that the Federal Reserve could soon begin to slow the pace of interest rate tightening. This idea made its way into the financial press, with articles highlighting recent Fed policy makers discussing the notion of taking a break to allow the Fed to evaluate lagged policy impacts. Last week was also a very busy week for third quarter earnings reports. At the end of the week, 52% of S&P 500 constituents now having reported. The blended year over year earnings growth rate for the index now stands at +2.2%, a bit higher than the previous week but on track to be the lowest since the third quarter of 2020. The blended revenue growth rate is 9.3%, better than expected at the end of the previous quarter. Corporate commentary has been cautious, touching on increased macro uncertainty, foreign exchange pressures, lingering supply chain issues, inflation challenges as well as some signs of continued consumer resilience. On the economic front, real U.S. gross domestic product (GDP) increased at an annual rate of 2.6% in the third quarter of 2022, according to the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.6%. The increase in real GDPreflected increases in exports, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending. These were offset by decreases in residential fixed investment and private inventory investment.
Investors can expect several key updates in the week ahead. Monday will see the market close out October, with the S&P 500 on track for a monthly gain after declining in August and September. The centerpiece of the week will be the November 1-2 Federal Open Market Committee meeting. Policy makers are broadly expected to increase the Fed Funds rate by 0.75%. Investors will also be looking for any sign that policymakers may slow the pace of tightening prospectively. Currently, market pricing sees a 0.50% interest rate increase at the December meeting. The U.S. labor market will also be in the spotlight, as several key reports, including the Bureau of Labor Statistics’ October nonfarm payrolls report, will be released. Consensus expectations are calling for a month over month softening in the headline jobs number and an uptick in hourly earnings. Additionally, ISM Manufacturing will be released on Tuesday and ISM Services on Thursday. Finally, the flood of third quarter earnings reports will continue, featuring 167 S&P 500 components, including Stryker, Aflac, Pfizer, Moderna, Toyota, Honda, Qualcomm, PayPal, Starbucks, and Kellogg’s, among others.
As always, we will be watching and reporting to you next week. Thank you.