Hello, this is Tom Jalics, Chief Investment Strategist at Fifth Third Bank
U.S. equities fell for the week as a wall of worry looms. The Middle East crisis seems to be escalating into a regional war with U.S. involvement. The S&P 500 fell on Friday in response to these geopolitical risks. Expect more volatility in equity markets in the near term even as bond yields potentially decline. A typical, seasonal fourth quarter year-end rally will be put into question given the rising tensions, but geopolitical conflicts tend to present long-term buying opportunities in risk assets. We continue to advise investors to remain relatively cautious in the very near term as the events in the Middle East persist, but our investment teams will be looking for opportunities to add to risk assets should stocks become unduly oversold in the near term.
The S&P 500 Index was down 2.4% for the week. The Nasdaq Composite closed the week down 3.2% and the Dow Jones Industrial Average was down 1.6% for the week. U.S. Treasury yields were up last week despite the risk-off sentiment in global markets with the 10-year U.S. Treasury note ending the week up thirty basis points to 4.91% and the 2-year U.S. Treasury note ending the week two basis points higher to 5.07%. The 2-year/10-year U.S. Treasury yield curve flattened but remained inverted, finishing the week at 16 basis points inverted. Gold finished the week 2.4% higher, ending the week at $1979/ounce. West Texas Intermediate (WTI) crude oil was up by 1.2% for the week, ending the week at $88.75/barrel.
It was a busy week on the economic front, but several domestic reports were noteworthy and mostly positive despite the concern in markets over the tensions in the Middle East. September retail sales were released on October 17th. Total retail sales increased 0.7% month-over-month in September following an upwardly revised 0.8% increase in August. The key takeaway from the report is that consumers are not shying away from spending which should translate into favorable U.S. third quarter GDP forecasts, which will likely complicate the Federal Reserve’s near-term interest rate outlook. September Industrial Production was released on October 17th. Total industrial production increased 0.3% month-over-month in September. Total industrial production was up 0.1% year-over-year. The capacity utilization rate of 79.7% was in-line with its long-run average. The key takeaway from this report is that manufacturing output continues to be soft and is likely to remain under pressure as the UAW strike at the Big Three automakers drags on. Initial and continuing jobless claims for the week ending October 14 were released on October 19th. Initial jobless claims for the week ending October 14 decreased by 13,000 to 198,000. That is the first reading below 200,000 since January 2023. Continuing jobless claims for the week ending October 7 increased by 29,000 to 1.734 million. The key takeaway from the report is the remarkably low level of initial jobless claims and modest level of continuing claims continues to convey a tight labor market and is likely to lead to continued strength in consumer spending, with no imminent domestic recession.
This week, investors are gearing up for an eventful week of corporate earnings. Markets will be digesting earnings reports from big tech companies including Microsoft, Meta Platforms, Amazon, and Google-parent Alphabet. Other prominent companies such as Visa, Mastercard, Verizon, Boeing, GE, Ford, General Motors, Spotify, Snap, IBM, Intel, ExxonMobil, and Chevron will also report earnings. Investors will get the advance estimate for U.S. third-quarter gross domestic product (GDP) on Thursday, along with the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, on Friday. Finally, the latest updates on the housing market will include new and pending home sales for September.
As always, we will be watching and reporting to you next week. Thank you.