Busy week for macro markets

October 29th, 2024

RECAPPING LAST WEEK

U.S. equity indices ended the week with mixed performance, as rising interest rates and the looming Presidential election registered a cautious tone with investors. The S&P500 index fell 1%, while the Nasdaq Composite rose slightly to a fresh record closing high. The Russell 2000 index slid 3%, slumping alongside international stocks, as the surging U.S. dollar weighed on sentiment. The deep cyclical sectors such as industrials and basic materials were the biggest underperformers last week.

Crude oil prices rebounded by 4%, but traders remained torn between potential supply disruptions from Middle East conflicts and demand concerns. U.S. Treasury yields climbed on solid economic data with the 10-year note rate reaching 4.25% for the first time since July. Manufacturing sector optimism edged the composite flash PMI up to 54.3 this month. Weekly jobless claims fell to 227k, but a rise in continuing claims was not enough reason to spark alarm in a labor market that continues to soften only gradually. The final consumer sentiment reading for October rose to a six-month high, as households grew more upbeat about lower financing costs. Fed funds futures pricing suggested that the Federal Reserve was still likely to cut interest rates by a quarter point at the November 6-7 meeting, although the economy’s resilience has some investors wondering if the pace of future cuts will be slower than previously anticipated.

The U.S. housing market continued to be hampered by high home prices and rising mortgage rates, as September’s existing home sales fell 1% to the slowest pace since 2010. New home sales fared better as demand was brisk. Overseas, the International Monetary Fund issued a generally optimistic global economic outlook, foreseeing faster growth from the U.S. while warning of deteriorating productivity from other developed countries, mainly in Europe. Meanwhile, the BRICS Summit of emerging economies closed last week’s meeting in Russia with much talk but little detail about how to create new payment and trade structures to compete with Western methods. In central bank news, the Bank of Canada reduced rates by 50 basis points, and a similar cut may be forthcoming by year-end as the country’s economic activity has stalled. In Europe and the UK, business activity weakened this month, raising concerns of recession. Finally, Japan’s Tokyo core CPI reading in October fell below the central bank’s 2% target; however, the BOJ is still expected to discuss further rate hikes in December.

THE WEEK AHEAD

As the calendar changes into November this week, U.S. investors will face a barrage of key
economic data. The main event will be the monthly jobs reports, but the first estimate of third- quarter GDP and the PCE price index will also be closely watched. Many of the U.S. technology heavyweights will report earnings, including Apple, Amazon, Meta Platforms, Microsoft, Alphabet, and Advanced Micro Devices. The U.S. economy is expected to have expanded by 3.0% in Q3—the same pace as Q2—but an upside surprise is possible. The Atlanta Fed’s GDPNow model is tracking at 3.4% growth.

October’s non-farm payrolls are projected to be half of the prior month’s 254k,
consistent with the gradual cooling seen in other areas of the labor market. Both data points are crucial for the Fed’s policy path. Consumer confidence, pending home sales, and ISM manufacturing PMI round out the domestic docket. Overseas, the Bank of Japan’s decision oninterest rates arrives Wednesday evening.

No change in rates is expected at this meeting, but an updated outlook on inflation and growth may set the tone for future hikes. European inflation and GDP figures will be released on Wednesday and Thursday, and disappointing results would likely ramp up speculation of a larger rate cut in December. Last of all, after a quiet week, China may jump back into the headlines with its PMI data.

(source: Schwab)

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Bear Market: A decline of at least 20% from the market’s high point to its low.
Beta: A measure of how an individual asset moves when the overall stock market increases or decreases.
Correlation: A measure of the extent to which two variables are related.
Dividend Yield: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend
payments divided by its market capitalization, assuming the number of sharesis constant.
Developed Markets: A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness
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LTM: An acronymfor”Last Twelve Months”or the past one year.
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Price Return: The rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, not including
income generated in the form of interest or dividends.
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Small Cap Stocks: Small-cap stocks are shares of companieswith a market capitalization of less than $2 billion.
Standard Deviation: In statistics, the standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates the
valuestend to be close to the historical average of the data set, while a high standarddeviationindicatesthe current value is outside of the historical average range.
Value Factor Stocks: Stocksthat are inexpensive relative to the broad market based on measures of fundamental value (e.g., price to earnings or price to book).

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