Market Synopsis: Stocks Lower, Treasury Yields Lower, Commodities Mixed, Dollar Higher, Crypto Higher
Past Week Events:
This Week's Events:
U.S. Q3 GDP Growth Exceeds Expectations
The U.S. economy demonstrated resilience in the third quarter, with a growth rate of 4.9% on a yearly basis, surpassing many analysts' forecasts. This robust expansion was primarily fueled by strong consumer spending and notable business investments, reflecting the economy's ability to navigate challenges. While supply chain disruptions and inflationary pressures have been areas of concern, the latest GDP figures underscore the sustained momentum and adaptability of the U.S. economic recovery.
Fed's Key Inflation Gauge Meets Expectations in September
In September, the Federal Reserve's primary inflation indicator reported a 0.3% rise, aligning with analysts' predictions. Concurrently, consumer spending surpassed expectations, indicating sustained economic activity. While inflation remains a focal point for policymakers, the consistent data suggests that the economy is navigating the inflationary environment while maintaining growth in consumer activity.
Next Week:
The Federal Reserve interest rate decision comes out on Wednesday of this week. This is extremely anticipated, and its results have large influences on the market. The Federal Reserve went on an extremely long rate hike streak, but as of late they paused rats, and as for this upcoming report investors are hoping for a rate cut or pause. Chairman Powell recently established that it is still likely that the Fed increases rates, and they are keen on the 2% inflation rate mark.
The unemployment rate will also be released next week. The unemployment rate is the number of people who are unemployed but are actively looking for work. Unemployment has remained steadily at low levels, for the unemployment rate was at 3.8% last month, and this upcoming report is forecasted to come in again at 3.8%.
Market Snapshot:
This week, the financial landscape was marked by a blend of unexpected macroeconomic data and geopolitical tensions. Despite some very upbeat economic data, earnings especially those of big tech names like Google took a hit.
Inflation expectations are showing a divergence. While the market's forecast for inflation over the next year has decreased, the American public's inflation expectations are on the rise. Amidst these economic indicators, U.S. Treasury yields and the risk associated with U.S. sovereign credit have both seen an uptick.
Geopolitical tensions added to the market's volatility. Around midday, warnings from the IDF about a potential ground invasion and indications of internet disruptions in Gaza sent stocks tumbling, while commodities like gold and oil surged. Major U.S. stock indices, already under pressure, faced further declines following these developments. The Dow managed to fare slightly better than its counterparts.
The week wasn't kind to big tech, with major tech companies seeing their lowest values since May 2023. Banks also faced challenges. Both the S&P and Nasdaq entered correction territory, painting a grim picture for October. Amidst the turmoil, Treasuries remained relatively stable, with yields dropping between 5 and 10 basis points over the week. The 2-year yield hovered around the 5.00% mark, and the yield curve, which measures the difference between short and long-term interest rates, moved out of its inverted state.
The U.S. dollar saw a slight increase by the week's end. In the cryptocurrency realm, Bitcoin experienced a massive uptick, crossing the $35,000 mark for the first time since May 2022. Oil prices, after a decline of over 4% during the week, rebounded due to escalating geopolitical tensions, pushing WTI close to $86. Gold also benefited from the situation in Gaza, soaring past the $2000 mark and approaching record highs.
Quip of the Week:"Contrarian investing is easy and secure in the realization that we cannot predict the future, and that not one of us, nor our collective genius, can eliminate the possibility of the unknown."
- David Dreman
U.S Equities:
Indexes(Week)
SPX 4,117.37(-2.53%), DJIA 32,417.59(-2.14%),
NASDAQ 12,643.01(-2.62%), RUT 1,636.94(-2.61%)
Sectors:
With the geopolitical scene becoming more tense and inflation still remaining, the U.S stock market did not see its best week. In fact, every single sector besides utilities ended negative. With energy, typically being one of the most volatile sectors, particularly amidst this Israel-Hamas conflict, ending at the bottom of the barrel approximately -6%. At the beginning of the week, oil prices saw a dip as Israel appeared to hold back from an invasion of Gaza and sought negotiations of hostages. However, oil prices seem to be currently on the verge of rebounding as tensions are intensifying and things are only getting worse.
Treasuries:
This week saw Treasury yields were quite volatile but ultimately drifted lower.
U.S. Treasury Secretary Janet Yellen has expressed confidence in the U.S. economy, highlighting the third quarter's nearly 5% growth as a sign of a "soft landing." In a Bloomberg interview, she attributed the recent rise in long-term bond yields to economic confidence and expectations of sustained higher interest rates. These comments sent yields higher but the strong data was enough to push yields in the other direction.
Commodities:
Oil
Oil Prices Navigate a Shaky Week Amid Middle East Unrest
In a somewhat unexpected turn, oil prices are hinting at a slide, marking the first dip we've seen in three weeks. This is intriguing, especially with the heightened tensions between Hamas and Israel. There's tangible concern in the air about this situation pulling more Middle Eastern nations into its vortex.
Here's the breakdown: Both WTI Crude (that's our U.S. touchstone) and Brent Crude found themselves on an upward trajectory this Friday. The figures? WTI at a solid $83.92 and Brent nudging $88.77. This jump is partly attributed to recent U.S. military interventions in eastern Syria, targeting facilities under the patronage of Iran's formidable IRGC. This action was in direct response to provocations against U.S. assets in the region by Iran-aligned groups.
Now, here's where it gets a tad more complex. Iran's top diplomatic voice at the UN issued a stark warning: The U.S. might find itself on shaky ground if it continues backing Israel's moves against Hamas. This geopolitical chess game, combined with jitters about looming economic shifts due to rising interest rates, is playing its part in steering oil market sentiments.
To add another layer, the U.S. Energy Information Administration dropped a bit of a bombshell: oil stocks are up, a contrast to last week's considerable depletion. Saxo Bank's experts weigh in, suggesting the oil market is treading on thin ice, with the Middle East's unpredictable state of affairs as a key influencer.
Gold
Similar to the past three weeks, gold sees a strong week as tensions in the Gaza strip intensify and investors continuously seek a safe-haven. Israel initiated their strongest attack on Gaza on Thursday, skyrocketing gold prices as it continues to thrive as a safe-haven asset amidst these horrifying geopolitical tensions.
Crypto:
BTC -33,851, 12.82% ETH - 1,779, 6.93%
BTC Graph (5-day)
Cryptocurrency prices and associated stocks experienced a surge on Monday following the Securities and Exchange Commission's (SEC) decision not to challenge its recent court defeat against Grayscale Investments in the D.C. Circuit court. This development reignited anticipation for the potential approval of a Bitcoin exchange-traded fund (ETF), propelling Bitcoin's price to rally by over 5% within the last 24 hours as of Monday afternoon. In parallel, legislative members are orchestrating new regulations aimed at enforcing anti-money laundering protocols within the cryptocurrency realm, as reported by Politico last Friday. This legislative move comes on the heels of a Wall Street Journal revelation that since 2021, Hamas and the Palestinian Islamic Jihad amassed up to $134 million in digital currencies post the unexpected assault on Israel on October 7. In a separate vein, the previous Alameda Research CEO, Caroline Ellison, disclosed in a testimony last Tuesday that Sam Bankman-Fried, the infamous cryptocurrency tycoon and founder of FTX, directed her towards criminal activities. Bankman-Fried, now a trial defendant, is confronting multiple fraud allegations linked to the previous year's collapse of the FTX exchange.
Europe:
Stoxx 600- 429.58, -0.96% DAX- 14,687, -0.75% FTSE 100 -7,291, -1.50%
DAX Chart (5-day)
This past week marked a harsh investor reaction to earnings warnings from European companies, marking the most severe response in 16 years. This response is driven by rising global interest rates, ongoing Middle Eastern conflict, and uncertain economic forecasts. Various blue-chip companies have witnessed their share values plummet, not only due to unmet forecasts but also over-optimism in a bleak growth scenario. For instance, the French payment company Worldline's value dropped by 70% in a day post adjusting its full-year targets, while pharmaceutical company Sanofi saw a 15% decline post revising its 2025 targets. Barclays, too, experienced an 8% fall after indicating major cost reductions due to domestic market weaknesses.
In this reporting season, firms that didn't meet earnings per share expectations saw an average share price decrease of 6.18% within five days post-reporting, contrasting with a 2.04% average gain for those exceeding expectations. This divergence, as noted by Morgan Stanley, is at its peak since 2007, indicating a notably unforgiving market. Notable mentions include Worldline slashing its cash flow estimates, Campari failing to meet expectations, Siemens Energy seeking state guarantees, and Volkswagen and Volvo Cars being overly optimistic amidst the gloomy macroeconomic scene.
Highly valued companies are particularly vulnerable if they fall short on earnings, with substantial punishments observed, especially in the healthcare sector. The selling scale has been extensive, with trading volumes skyrocketing. The tightening credit conditions, ascending global bond yields due to central banks hiking rates, have underpinned equities, albeit creating an asymmetry. The once resilient global economy is now showing signs of slowing down, leading to a meticulous examination of companies' balance sheets for hidden weaknesses. Amid this volatility, some investors are spotting buying opportunities in stocks that have been excessively penalized, like Swiss contract drug manufacturer Lonza, whose share price fell significantly but is still being held by some investors due to belief in its core business1.
Asia:
XJO (Australia)-6,826, -1.07% Shanghai 180 Index-7,710, 0.92% Nikkei 225- 30,991, -0.86%
XJO Chart (5-day)
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