Hello, this is Tom Jalics, Chief Investment Strategist at Fifth Third Bank
U.S. equities fell last week as geopolitical concerns coupled with high interest rates have led to more risk aversion from investors. The S&P 500 Index was down 2.5% for the week and moved into correction territory, haven fallen more than 10% from its recent peak. The Nasdaq Composite closed the week down 2.6% and the Dow Jones Industrial Average was down 2.1% for the week. U.S. Treasury yields declined modestly last week with the 10-year U.S. Treasury note ending the week down seven basis points to 4.84% and the 2-year U.S. Treasury note ending the week six basis points lower to 5.01%. The 2-year/10-year U.S. Treasury yield curve remained inverted, finishing the week at 17 basis points inverted. Gold finished the week 1.3% higher, ending the week at $2,006/ounce. West Texas Intermediate (WTI) crude oil was down by 4.0% for the week, ending the week at $85.19/barrel.
It was a busy week on the economic front, with several noteworthy domestic reports that were mostly positive, reinforcing the view that the domestic economy remains resilient despite financial market volatility. Initial jobless claims for the week ending October 21 increased by 10,000 to 210,000. Continuing jobless claims for the week ending October 14 increased by 63,000 to 1.790 million. Initial and continuing jobless claims do not suggest the labor market is weakening in a material way nor is the U.S. economy close to a material slowdown or recession. Real U.S. GDP increased at an annual rate of 4.9% in the third quarter following a 2.1% increase in the second quarter led by personal spending and gross private domestic investment. Economic activity surged in the third quarter on the back of the consumer, reinforcing the resiliency of the domestic economy. The PCE Price Index was up 0.4% month-over-month and up 3.4% year-over-year, unchanged from August. The core-PCE Price Index, which excludes food and energy, rose 0.3% month-over-month, as expected, and was up 3.7% year-over-year versus 3.8% in August. The PCE Price Index and the core PCE Price Index, which is the Fed’s preferred measure of inflation, lacked a more disinflationary tone. Modestly slowing inflation, coupled with a tight labor market and resilient economy, likely reinforces a higher for longer interest rate policy.
S&P 500 earnings came in fast and furious last week. According to FactSet’s Earnings Insights, the index is reporting higher earnings for the third quarter today relative to the end of last week and relative to the end of the quarter. The S&P 500 is now reporting year-over-year growth in earnings for the first time since third quarter 2022. Overall, 49% of the companies in the S&P 500 have reported actual third quarter results. The blended earnings growth for the third quarter is 2.7%, compared to a decline of -0.4% last week and a decline of -0.3% at the end of the previous quarter. During the upcoming week, 162 S&P 500 companies are scheduled to report results for the third quarter.
A busy week for earnings and economic releases is on deck as investors keep an eye on Wednesday's FOMC announcement. This week investors will be digesting earnings reports due from Apple, McDonald’s, Pfizer, AMD, Caterpillar, Stellantis, Qualcomm, PayPal, Airbnb, and Starbucks, among others. Central banks around the world, including the U.S. Federal Reserve, Bank of England (BoE), and Bank of Japan (BoJ) will also meet to discuss and set interest rates. For Wednesday’s Fed meeting, investors expect no interest rate changes and likely hawkish commentary from Fed Chair Powell which would play into his higher for longer interest rate mantra. On the economic calendar in the U.S., we’ll get the latest updates on the labor market, including the nonfarm payrolls report for October, along with home prices and PMI survey readings.
As always, we will be watching and reporting to you next week. Thank you.