Weekly Investment Perspective

U.S. equity markets posted strong gains last week, with all major indices closing at record highs. The S&P 500 rose 1.92%, the Nasdaq gained 2.31%, the Dow added 2.20%, and the Russell 2000 climbed 2.50%. The rally was fueled by cooling inflation data, upbeat Q3 earnings, and growing expectations for further Fed rate cuts. Tech led sector performance, with Amazon and semiconductors among the standouts, while consumer staples and utilities lagged. Despite lingering concerns around tariffs and labor market softness, investor sentiment remained buoyant, supported by favorable macro data and resilient corporate fundamentals. With nearly 30% of S&P 500 companies having reported, Q3 earnings are tracking well above expectations. Blended earnings growth has reached 9.1%, and over 80% of companies have beaten EPS estimates.

Global equities were mixed. Europe saw modest gains in the FTSE 100 and DAX, while the CAC 40 and BEL 20 edged lower. Japan’s Nikkei 225 broke above 50,000 for the first time, driven by optimism around domestic stimulus and trade prospects. Emerging markets underperformed, with the MSCI EM Index down 0.28%, pressured by currency volatility and geopolitical tensions.

Treasuries were mostly firmer, with the yield curve flattening. The 10-year U.S. Treasury yield held steady at 4.02%, while the 2-year ticked up to 3.48%, reflecting ongoing uncertainty around rate policy. Crude oil surged 7.6% following new U.S. sanctions targeting Russia’s largest oil companies. Gold declined 1.7%, as investors rotated out of safe-haven assets amid improving risk sentiment.

September’s CPI report came in lower than expected, with shelter-related components easing and deflation observed in categories like used vehicles and airline fares. Existing home sales hit a seven-month high, and the flash composite PMI reached a three-month peak. These data points reinforced expectations for continued Fed easing, with markets pricing in two additional rate cuts before year-end.

Trade tensions resurfaced after reports that the U.S. may impose new export restrictions on China-linked goods using American software. While the move is seen as a potential escalation, sources suggest the White House may stop short of full implementation. A meeting between Presidents Trump and Xi is scheduled for October 30, with tariff risks still looming.

The government shutdown remains unresolved and is now expected to extend into November. Nearly 900,000 workers have missed paychecks, and the USDA warned that SNAP benefits for over 40 million Americans could lapse by November 1. Military pay may be disrupted by mid-November if the impasse continues. The suspension of federal data releases has complicated economic analysis, with agencies like the Bureau of Labor Statistics remaining closed.

Looking ahead, this week brings several high-impact events that could shape market direction. The Federal Reserve is set to meet on Wednesday, and markets widely expect another rate cut in response to continued labor market softness and subdued inflation. Investors will closely monitor Chair Powell’s remarks and the updated dot plot for insights into future policy moves. On the corporate front, Big Tech earnings will dominate headlines, with Microsoft, Meta, Alphabet, Amazon, and Apple all reporting. These results will offer critical signals about consumer demand and the trajectory of AI-related capital spending. Meanwhile, a full slate of economic data releases—including durable goods orders, home price indices, consumer confidence, pending home sales, Q3 GDP, and September PCE—will provide further clarity on the health of the economy.

The market’s resilience amid geopolitical uncertainty and data delays underscores the strength of corporate earnings and consumer demand. However, risks tied to trade policy, the shutdown, and rate dynamics warrant continued vigilance.

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