Markets Blog
David Matzko, LPL Research
U.S. stocks’ string of weekly gains continued, and the S&P 500 reached another record high despite choppy trading as markets repriced Federal Reserve (Fed) rate-cut bets and digested economic data surprises. On the corporate front, earnings season kicked off on a positive note, as big bank results on Friday were broadly better than expected. Meanwhile, Chinese stocks struggled on weak holiday spending data and disappointing economic press briefings, while market watchers in Europe focused on central bank rate outlooks. Meanwhile, Treasury yields continued to march higher on reduced rate-cut expectations.
Index Performance
U.S. and International Equities
U.S. Equities: The S&P 500 and Nasdaq Composite extended their string of weekly gains, as stocks powered through choppy trading amid the repricing of Fed rate-cut probabilities and key inflation data. The Nasdaq added just over 1%, despite some individual tech names facing downward pressure intra-week, while the S&P 500 and Dow also ended the week slightly over 1% in positive territory. On a weekly basis, growth outperformed value stocks, and small caps edged higher.
On a rocky start to the week, major indexes slipped as the odds of another half-percentage-point rate cut from the Fed were smothered following last Friday’s stronger-than-expected jobs data. The data underscored the resilience of the U.S. economy and boosted soft-landing optimism, but stocks slid briefly amid expectations of a slower pace of interest rate easing. Economic data continued to drive stocks for the remainder of the week, as Thursday’s hotter-than-expected Consumer Price Index (CPI) release, paired with a rise in jobless claims, surprised investors, leading to modest declines on the day. After the September Producer Price Index (PPI) release did little to sway the market’s monetary policy expectations, focus shifted to big banks and the unofficial start of earnings season. Headliners Wells Fargo (WFC), JPMorgan Chase (JPM), and Bank of New York Mellon (BK) all topped earnings estimates, with WFC and JPM up sharply on the results and management commentary. Magnificent Seven stocks Amazon (AMZN) and Google parent company Alphabet (GOOG/L) also made headlines due to separate antitrust lawsuits from U.S. regulators.
International Equities: Ahead of next week’s European Central Bank (ECB) meeting, central bank rate outlooks were also in focus in Europe. Investors monitored rate expectations and macro data in the U.S., as well as mid-week remarks from ECB officials, indicating the central bank is poised for further policy changes. Increased rate cut hopes helped boost European stocks to a weekly gain; however, luxury and automaker stocks came under pressure after reports indicated China is considering higher taxes on brandy and large-engine cars imported from the European Union (EU). On the macro front, U.K. gross domestic product (GDP) arrived in-line and the RICS house price index turned positive for the first time in two years, while the weakening German economy delivered mixed results with a few upside surprises.
Asian stocks ended mixed, with China's economic stimulus remaining top of mind. Chinese stocks fell after weak holiday spending data and no additional stimulus measures from the National Development and Reform Commission (NDRC) press briefing disappointed investors. Chinese markets remained muted for the remainder of the week, with markets debating if tax relief, consumer support, or housing market intervention would be included in the finance ministry’s Saturday briefing. Japan ended higher despite an unexpected rise in wholesale inflation and weak bank lending data mid-week, while South Korea also advanced. Taiwan ended higher on tech names, boosted by a revenue jump from Taiwan Semiconductor, offsetting weak results from Samsung Electronics.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg U.S. Aggregate Bond Index ended the week lower as Treasury yields continued to climb higher. The market re-pricing out Fed rate cut odds drove Treasury yields higher (prices lower) as the market is pricing in a smaller 0.25% cut at the next Fed meeting in November, pushing the 10-year yield to recent highs. The two-year yield ended near 3.94%, while the 10-year yield traded near 4.08% on Friday. The $119 billion (total) of Treasuries auctioned off this week were mixed with middling results for the three and ten-year auctions but strong demand for the 30-year securities. Note, the bond market will be closed on Monday in observance of the Columbus Day and Indigenous People’s Day holidays.
Since the recent lows on September 16, the 10-year Treasury yield is higher by nearly 0.50%, whereas the monetary policy-sensitive two-year yield is higher by roughly 0.42%. The non-parallel shift higher in rates has served to further un-invert the curve with the 10-year higher than the two-year by 0.14%. Treasury yields can generally be broken out by inflation and growth expectations, and the recent increase in the 10-year yield has been roughly evenly split between better economic growth data along with a pick-up in inflation expectations. And while inflation expectations still remain relatively contained, the move higher since the Fed’s last meeting suggests the bond market isn’t quite ready to declare inflation worries are behind us. After Thursday's slightly hotter-than-expected CPI report, markets have priced in a 15% chance the Fed will skip the November meeting, which is appropriate, in our view. After weeks of markets pricing in too many rate cuts throughout 2025, Fed rate cut pricing is better aligned with the economic data. At over 4%, we think the 10-year is back in a 3.75% to 4.25% range through year-end. The next Fed meeting is still nearly a month away, so the Treasury market will likely continue to be volatile.
Commodities and Currencies: The Bloomberg Commodities Index declined on the week, and oil prices remained in focus around the globe. West Texas Intermediate (WTI) crude continued to experience notable price swings, falling mid-week before rebounding for a weekly gain. As the world continues to await Israel’s response to Iran, prices initially eased as investors waited for potential retaliation. However, oil prices rose Thursday on reports of Israel’s cabinet meeting to vote on retaliatory measures, paired with mass buying in Florida ahead of Hurricane Milton’s landfall. Elsewhere, gold prices ended the week slightly higher, paring early weekly losses. Gold received support from a surge in U.S. unemployment claims and a sentiment boost from a sharp rise in retail gold sales in China during August. Silver and copper ended the week lower. In currencies, the dollar strengthened slightly against its peers as U.S. economic data favored the less dovish, smaller rate cut outlook, while the yen weakened against the greenback.
Economic Weekly Roundup
Amid market repricing of Fed rate cut expectations, a busy week of Fedspeak and the release of the September Federal Open Market Committee (FOMC) meeting minutes drew investor attention. Fed officials stressed the central bank’s patience for cutting rates over time, while emphasizing their data-driven process and focus on the cooling labor market and inflation progress. The September FOMC meeting minutes revealed a substantial majority supported the 0.5% cut, with almost all agreeing inflation risks had diminished while downside risks to employment had increased.
However, Thursday’s slate of economic data arrived broadly hotter than expected. The September core Consumer Price Index (CPI), which strips out volatile food and energy prices, unexpectedly rose 0.3% from August versus 0.2% expected, and 3.3% from a year ago versus 3.2% expected. Meanwhile, initial and continuing jobless claims also topped estimates and prior readings, indicating the labor market continues to slowly cool. Friday’s Producer Price Index (PPI) for final demand was flat in September, due to declines in gasoline, suggesting further inflation progress. The release was perceived as relatively benign, and did not appear to materially shift the market’s policy expectations.
Following the early-week rate repricing and the week’s inflation data, markets have priced in a solid likelihood of the Fed further reducing rates at the November meeting, albeit more likely a 0.25% cut compared to another jumbo 0.5% cut. Inflation remains contained despite Thursday’s CPI reading, and Fed officials noted that the print represents a single month and slowdown in shelter inflation is welcome. The labor market is not cooling at a catastrophic pace, and high-frequency jobless claims data remains below their peaks.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: New York Fed 1-Year Inflation Expectations (Sep)
Tuesday: Empire Manufacturing (Oct), Monthly Budget Statement (Sep)
Wednesday: MBA Mortgage Applications (Oct 11), New York Fed Services Business Activity (Oct), Import Price Index (Sep), Import Price Index ex Petroleum (Sep), Export Price Index (Sep)
Thursday: Retail Sales Advance (Sep), Retail Sales ex Auto (Sep), Retail Sales ex Auto and Gas (Sep), Retail Sales Control Group (Sep), Philadelphia Fed Business Outlook (Oct), Initial Jobless Claims (Oct 12), Continuing Claims (Oct 5), Industrial Production (Sep), Capacity Utilization (Sep), Manufacturing (SIC) Production (Sep), Business Inventories (Aug), NAHB Housing Market Index (Oct), Total Net TIC Flows (Aug), Net Long-term TIC Flows (Aug)
Friday: Housing Starts (Sep), Building Permits (Sep)
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