Weekly Investment Perspective

Markets wrapped up a volatile week with a mixed tone, as investors digested hawkish Federal Reserve commentary, lingering uncertainty from the recent government shutdown, and the tail end of earnings season. While the S&P 500 managed to eke out a slight gain of +0.01%, the Dow added +0.71%, and the Nasdaq slipped 0.39%. Sector rotation and factor shifts were the real story.

Early optimism around easing capital requirements for big banks and bullish analyst commentary on AI infrastructure helped lift financials and select tech names. However, momentum trades—particularly in unprofitable tech and retail favorites—faced pressure midweek, culminating in Thursday’s sharp selloff when the S&P fell 1.11% and the Nasdaq dropped 1.75%. Defensive sectors like healthcare stood out, gaining roughly 5.5% for the week, as investors sought stability amid uncertainty. Gold surged early, finishing the week up 2.4%, while WTI crude swung from a 4.2% decline midweek to a 2.7% rebound Friday, settling just below $60 per barrel. The dollar index was little changed overall, though it firmed slightly into the weekend.

The Fed remains a central focus. A series of speeches highlighted a divided committee: some members argued for patience, while others flagged inflation risks. Market expectations for a December rate cut are receding and now stand near 50%, down from two-thirds earlier in the month. Longer term, futures still price in roughly 80 basis points of cuts through 2026, suggesting the Fed’s path will be gradual rather than aggressive.

Economic data remains clouded by the recent shutdown, which delayed key government releases. Jobless claims held near 227,000, only slightly above last year’s levels, reinforcing the “low hiring, low firing” narrative. Consumer sentiment dipped to a three-year low, but spending remains resilient, particularly among higher-income households. Retail sales for October likely fell modestly, largely due to the expiration of EV tax credits, while underlying demand appears steady.

Earnings season is nearly complete, with over 90% of S&P 500 companies having reported. Results have been solid—EBITDA beats averaged 2%, led by strength in healthcare and technology. Looking ahead, marquee names including NVIDIA, Walmart, and Home Depot will report next week, keeping AI and consumer trends in focus.

Despite headline volatility, the market’s underlying tone remains constructive. Corporate fundamentals are healthy and monetary policy is poised to stay supportive. Near-term swings are likely as data catches up post-shutdown, but for long-term investors, the case for disciplined diversification and quality exposure remains strong.

This week brings a heavy slate of data and events. Housing Starts and the NAHB Index will provide information on real estate momentum. The release of the FOMC Minutes should give more insight into the group’s thinking on a December rate cut. Walmart, Target, and Home Depot earnings will gauge holiday spending trends along with NVIDIA results a key barometer for AI-driven tech demand.

2025 The Long View | First Merchants Bank