Weekly Investment Perspective

Markets ended the week on a cautious note amid valuation concerns in technology, economic uncertainty, and the prolonged government shutdown. All three major U.S. equity indexes posted their first weekly losses in a month: the Nasdaq Composite fell roughly 3%, marking its worst week since April, while the S&P 500 and Dow Jones Industrial Average declined 1.6% and 1.2%, respectively. The pullback was driven by profit-taking in AI-related stocks, despite strong third-quarter earnings from many S&P 500 companies. Concerns over stretched valuations and slowing demand weighed on sentiment.

The economic outlook remains clouded by the record-breaking government shutdown, now in its 41st day, which has delayed key federal data releases, including the October jobs report. Private indicators mixed signals: ADP reported a modest gain of 42,000 private-sector jobs in October, while Challenger data showed 153,000 announced layoffs- the highest October total in over two decades. Consumer sentiment fell to its lowest level since mid-2022, reflecting growing anxiety over missed paychecks and service disruptions.

On Capitol Hill, progress emerged as the Senate advanced a bipartisan measure to reopen the government through January 30 and restore full-year funding for programs like SNAP and veterans’ benefits. The deal also includes a December vote on extending ACA subsidies. While not yet final, the vote signals momentum toward resolution, with passage possible this week if the House acts promptly.

U.S. stocks enter the week oversold after last week’s sharp tech-led decline. The S&P 500 is testing its 50-day moving average, a key technical support level. A sustained move above this level could spark a short-term rebound, while failure to hold may lead to further downside.

The Nasdaq and semiconductor index remain under pressure as investors reassess lofty AI valuations. Expect continued rotation into defensive sectors and financials, which have shown relative strength.

Treasury yields are expected to stay range-bound, with the 10-year hovering near 4.08% and the 30-year around 4.67%. Auctions of 3-year, 10-year, and 30-year notes this week will test investor appetite for longer maturities amid uncertainty over fiscal policy.

The Fed’s recent 25-basis-point rate cut has tempered expectations for further easing in December, keeping short-term yields anchored near 3.6% for 2-year notes.

Markets will remain sensitive to fiscal developments and signs of economic strain. With earnings season winding down and liquidity tightening, volatility may persist until clarity on policy and the Fed’s next steps emerge.

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