Weekly recap
Weekly recap of world’s major stock markets China, USA, Japan and Europe
Stock Market action Replay Day-wise
Get a weekly market recap of indices performance with a recap of sector and industry trends as well as a market review of key news items, broker rating changes, and earnings events that impacted the stock and treasury markets. Our stock marketing weekly summary also highlight key events scheduled for the following week.
Weekly Wrap for October 30, 2023
The stock market rose on Q3’s busiest earnings week. The schedule included Apple (AAPL) earnings, which fell short of market forecasts and languished. Market rates’ sharp reduction helped earnings news receive a positive response.
The 10-yr note yield fell 31 basis points to 4.51% and the 2-yr yield 17 basis points to 4.86% this week. These factors contributed to those moves:
- Unwinding carry trades was mitigated by the Bank of Japan’s yield curve control policy change, which was less aggressive than expected.
- The Treasury cut Q4 borrowing estimates by $76 billion to $776 billion.
- The Treasury predicted 2-, 3-, 5-, and 7-year maturities would have bigger issuance and auction sizes than 10-, 20-, and 30-year maturities in Q4 refunding.
- Short sellers covered their positions
Another major Treasury market driver was the FOMC meeting. The committee unanimously maintained the fed funds rate target range of 5.25-5.50%, while Fed Chair Powell’s press address was less hawkish than expected. Mr. Powell highlighted that the Fed’s rate-hike cycle has advanced and policy decisions have become more bipartisan.
In a 6-3 decision, the Bank of England maintained its benchmark rate. Three votes wanted a 25 basis point raise.
Some significant data releases this week supported the market’s belief that the Fed may be done hiking rates. The October jobs report showed slower payroll growth, rising unemployment, and slower wage growth, while the ISM Manufacturing Index contracted faster (46.7%; expected 49.0%; prior 49.0%). Q3 unit labor costs fell 0.8% on the back of the strongest productivity increase (4.7%) since the third quarter of 2020.
The CME FedWatch Tool shows that the fed funds futures market is pricing in at least two rate decreases over the next year.
The significant drop in rates boosted equities due to short-covering and a concern of missing out on more profits in a seasonally strong market. The S&P 500 entered technical correction area last week, but this week’s rebound returned it above its 200-day and 50-day moving averages.
The rate-sensitive real estate sector rose 8.6%, followed by finance (+7.4%), consumer discretionary (+7.2%), and information technology (+6.8%). Energy, the “worst” sector, rose 2.3% this week.
The rally included almost everything. The Vanguard Mega Cap Growth ETF (MGK) increased 6.6%, the Russell 3000 Value Index rose 5.8%, and the Russell 3000 Growth Index rose 6.3%.
The Fed may be done hiking rates, which weakened the US currency this week. US Dollar Index declined 1.4% to 105.04.
Monday
The major indices gained 0.7% to 1.6% to close near their day highs. After Friday’s finish put the S&P 500 in correction territory (down 10%+ from a recent closing high), stocks rebounded in the afternoon.
Outperforming mega caps drove broad gains. Vanguard Mega Cap Growth ETF (MGK) rose 1.5% while the market-cap weighted S&P 500 rose 1.2%. Apple (AAPL) gained 1.0% before its earnings report on Thursday.
Positive bias was partly due to a buy-the-dip mentality following Friday’s poor finish, business news, and relief that the Israel-Hamas War is still two-party.
Semiconductor stocks fell alongside ON Semiconductor (ON), which posted better-than-expected Q3 profits but dismal Q4 forecasts.
No significant U.S. economic data was released Monday.
Tuesday
Major indices opened the session mixed, fluctuating around Monday’s close. However, afternoon trading increased buying activity, helping some mega caps recoup from early losses or extend early gains. The afternoon rally left the major indices at their day’s highs with small gains. On Tuesday, the S&P 500 approached 4,200.
The Vanguard Mega Cap Growth ETF (MGK) gained 0.5% and the S&P 500 closed up 0.7%. All 11 S&P 500 sectors gained, led by real estate (+2.0%) and financials (+1.1%). Communication services (+0.2%) gained the least.
A lot of earnings news since Monday’s closure gets mixed reviews. Dow components Caterpillar (CAT) and Amgen (AMGN) lost standouts after earnings reporting, but Pinterest (PINS) and Arista Networks (ANET) gained significantly.
Economic data from Tuesday
- October Chicago PMI 44.0 (Briefing.com consensus 45.0); Prior 44.1
- Q3 Employment Cost Index 1.1% (Briefing.com consensus 1.0%); Prior 1.0%
- Compensation costs fell to 4.3% in the 12-month period ending in September from 5.0% in September 2022. That doesn’t change enough for the Fed to consider reducing rates soon.
- FHFA Housing Price Index 0.6% August; 0.8% Prior.
- August S&P Case-Shiller Home Price Index 2.2% (Briefing.com consensus 0.3%); amended from 0.1% to 0.2%.
- October Consumer Confidence 102.6 (Briefing.com consensus 100.0); formerly 104.3 from 103.0.
- The survey concludes that rising prices and interest rates are lowering consumer confidence, particularly among households over 35, regardless of income.
Wednesday
The major indices started November strong, closing near session highs. As participants awaited the FOMC decision and Fed Chair Powell’s news conference, early gains were modest.
The FOMC unanimously maintained the fed funds rate target range of 5.25–5.50%, as expected. In the press conference, Mr. Powell acknowledged that the Fed has come a long way with this rate-hike cycle and that policy decisions (doing too little or too much) have become more two-sided, whereas in the first year of tightening, the risk was all on the side of not doing enough.
The CME FedWatch Tool shows that the fed funds futures market is pricing in at least two rate decreases over the next year.
Fed Chair Powell spoke and market rates fell, sending the major indices to their best levels of the session. Mega caps led the afternoon increase, although numerous other stocks helped the index.
Economic data from Wednesday
- Weekly MBA Mortgage Applications Index -2.1%; Prior -1.0%
- October ADP Employment Change 113K (Briefing.com consensus 100K); Prior 89K
- After 49.8, October S&P Global US Manufacturing PMI was 50.0.
- September Construction Spending 0.4% (Briefing.com consensus 0.4%); Prior 1.0% from 0.5%.
- The report highlights that private and public construction spending were balanced in September, boosting total construction spending, which was up year-over-year and out of any hard landing zone.
- October ISM Manufacturing Index 46.7% (Briefing.com consensus 49.0%); Prior 49.0%
- The report’s main takeaway is that manufacturing sector contraction accelerated in October, which will weaken the economy in the fourth quarter and temper market rate acceleration.
- September JOLTS: Job Openings 9.553 mln; Pror revised to 9.497 from 9.610.
Thursday
The stock market rallied Thursday due to dropping interest rates, solid earnings news, and short covering. The Russell 2000 rose 2.5% while the three main indices rose 1.7% to 1.9%. Above its 200-day moving average (4,244) and 4,300, the S&P 500 closed.
The 2-yr note yield rose one basis point to 4.98% while the 10-yr note yield declined 12 basis points to 4.67%. Some softening eurozone manufacturing PMI data, the Bank of England’s decision to keep its Bank Rate unchanged at 5.25%, Treasury market short-covering, and the Q3 productivity report showing a 0.8% decline in unit labor costs helped lower long-term rates.
Just about everything joined the stock market rise. 29 of 30 Dow components and 11 S&P 500 sectors closed higher.
Earnings news was generally well received, supporting the market.
Following Fed Chair Powell’s press presentation after the FOMC meeting on Wednesday, the Fed may be done hiking rates, and seasonality were also considerations. November has historically been the S&P 500’s greatest month and starts its best six-month return period.
Economic data from Thursday:
- Initial Claims 217K (Briefing.com consensus 214K); Prior was revised to 212K from 210K; Weekly Continuing Claims 1.818 mn; Prior was revised to 1.783 from 1.709
- The report’s main conclusion is that low initial claims don’t indicate a labor market worsening.
- Q3 Productivity-Prel 4.7% (Briefing.com consensus 3.6%); Prior amended to 3.6% from 3.5%; Q3 Unit Labor Costs-Prel -0.8% (Briefing.com consensus 1.5%); Prior revised to 3.2% from 2.2%.
- Other than the excellent productivity increase, the report’s unit labor cost drop is most noteworthy. It coincides with the market’s growing belief that lowering inflation pressures will prevent the Fed from raising rates again.
- September Factory Orders 2.8% (Briefing.com consensus 1.0%); 1.2% was revised to 1.0%.
- The report’s main lesson is that transportation orders bolstered industrial orders in September, but not exclusively.
Friday
The stock market ended this winning week strongly. A loss in Apple (AAPL) due to a fiscal Q1 revenue projection that disappointed analysts hampered index gains, but broad purchasing activity compensated it. After Friday morning’s GDP report, buyers expected rates to decrease sharply.
Short-covering and a fear of missing out on further gains in a seasonally strong market helped many equities increase on Friday. After falling 2.4%, Apple recovered well.
After dipping below 4,103 last Friday, the S&P 500 finished above its 50-day moving average (4,347). The Russell 2000, which has lagged other key indices recently, gained 2.8% today and 7.6% for the week.
Friday’s economic data review
- October Nonfarm Payrolls 150K (Briefing.com consensus 175K); Prior was revised to 297K from 336K; October Nonfarm Private Payrolls 99K (Briefing.com consensus 143K); Prior was lowered to 246K from 263
- October Average Hourly Earnings 0.2% (Briefing.com consensus 0.3%); Prior 0.2% to 0.3%; October Unemployment Rate 3.9% (Briefing.com consensus 3.8%); Prior 3.8%; October Average Workweek 34.3; Prior 34.4
- It seems odd to welcome declining labor market activity, but this report is a “soft landing report” that will discourage the Fed from raising the fed funds rate again.
- Final October S&P Global US Services PMI 50.6; Prev 50.1
- October ISM Non-Manufacturing Index 51.8% (Briefing.com consensus 53.0%); Prior 53.6%
- The study shows that the largest sector of the U.S. economy is slowing but not declining, supporting the soft landing approach.
Weekly recap of world’s major stock markets China, USA, Japan and Europe
U.S.
U.S. stocks rise the most since November 2022 due to lowering rates.
As long-term bond yields fell sharply due to signals of a slowing economy and a dovish Federal Reserve policy statement, the S&P 500 Index posted its biggest weekly gain in over a year. While growth stocks and the technology-heavy Nasdaq Composite Index outperformed, the small-cap Russell 2000 Index led the gains, which were broad-based and its highest weekly rise since October 2022.
In the second-busiest week of earnings season, T. Rowe Price traders highlighted that institutional investors’ moves to register tax losses before their fiscal year concluded on October 31 appeared to affect markets. Index rebalancing and “window dressing” before month-end holdings announcement may have contributed.
Investors digested policy announcements, economic reports, and geopolitical happenings during earnings week. The Fed’s Wednesday policy meeting drove sentiment. As expected, the Fed kept rates constant, but the post-meeting statement showed that the recent runup in long-term Treasury yields had tightened financial conditions. Investors were encouraged. Fed officials sounded happy with recent economic data surprises, changing their definition of economic growth from “solid” to “strong.”
Highest unemployment rate since early 2022
Investors hoped wage pressures would follow Friday’s carefully anticipated payrolls report, which showed the labor market was cooling. October’s 150,000 job growth was below estimates and the lowest since June. September’s robust gain was revised down. Meanwhile, unemployment reached 3.9%, its highest level since January 2022.
Average hourly earnings grew 0.2%, less than predicted, but September’s gain was revised up to 0.3%. The 12-month gain dropped to 4.1%, its lowest level in two years, but it was still above the 3% threshold regulators consider consistent with their 2% inflation objective. The Labor Department’s quarterly employment cost index, released Monday, showed a 4.3% annual salary and benefit increase.
Preliminary quarter productivity estimates were better than expected, with unit labor costs falling, encouraging workers and investors. The 4.7% productivity increase was the best since firms reopened in the third quarter of 2020 during the epidemic.
Treasury funding worries ease.
A third element bolstering market mood was the U.S. Treasury’s statement that it will sell USD 112 billion of longer-term assets at its quarterly refunding auctions the following week, down from USD 114 billion. Our traders noted that downward revision seemed to remove a big bond market overhang, as concerns have grown that Treasuries demand would not keep up with the growing supply needed to support rising federal debt.
These factors caused long-term Treasury yields to fall over the week, with the 10-year U.S. Treasury note yield falling from 4.88% to 4.48% on Friday, its lowest level since late September. Bond prices and yields move oppositely. The municipal bond market benefited from dropping Treasury yields and modest primary issuance.
After the Fed’s Wednesday statement, credit-sensitive bond sectors responded well. The investment-grade corporate market saw strong demand for heavy issuance, while the high yield bond market benefited from a paucity of new issues and Ford debt’s upgrade to investment grade, which will move it out of the indexes.
Europe
The pan-European STOXX Europe 600 Index rose 3.41% in local currency after a loss the week before. Major market indexes rose on expectations that interest rates may have peaked. The Italian FTSE MIB rose 5.08%, France’s CAC 40 Index rose 3.71%, and Germany’s DAX rose 3.42%. UK FTSE 100 Index rose 1.73%.
As expectations mounted that major central banks had finished tightening monetary policy, European bond yields fell. German 10-year sovereign bond yields fell to their lowest levels in over two months. Swiss, French, and UK 10-year bond yields fell.
BoE keeps rates at 15-year high, predicts 2024 stagnation
The Bank of England (BoE) held interest rates at 5.25%, a 15-year high, for the second meeting but warned that they would remain low for “an extended period of time.” Governor Andrew Bailey said the BoE “will be watching closely to see if further interest rate increases are needed, but even if they are not needed, it is much too early to be thinking about rate cuts.”
The central bank’s latest predictions showed inflation halving by year-end and falling below 2% by 2025, later than expected. The BoE predicted 0.1% growth for the rest of the year and flat growth in 2024.
The UK housing market remains poor. In September, lenders authorized 43,328 mortgages, the lowest since January, according to the BoE.
Eurozone inflation falls, economy weakens; German unemployment grows.
Eurozone inflation fell more than predicted to 2.9% in October, its lowest level since July 2021, from 4.3% in September. The EU statistics agency attributed the drop to falling energy and food prices. The decline likely reflected poorer bloc economic development; GDP fell 0.1% sequentially in the third quarter. The eurozone’s largest economy, Germany, shrank by the same amount as in the second quarter. Germany’s Federal Labor Office announced a 5.8% seasonally adjusted jobless rate in October, more than predicted. For comparison, September unemployment was 5.7%.
Norges Bank maintains rates
Norway’s central bank left its key interest rate at 4.25% but indicated it would likely raise borrowing costs in December unless inflation abated.
Japan
During the week, the Nikkei 225 Index and TOPIX Index rose roughly 3%. Though the BoJ altered its yield curve management mechanism, monetary policy remained relatively accommodating, sustaining sentiment. However, the central bank’s dovish stance weighed on the yen, which briefly fell below 151 per dollar. Given the Japan-U.S. interest rate gap, the Japanese yen has remained under pressure.
BoJ loosens monetary policy to boost rates and inflation projections.
The BoJ maintained its ultra-loose monetary policy stance at its October meeting, keeping its short-term lending rate at -0.1%. However, for the second time in three months, the central bank adjusted its yield curve control framework to allow yields to rise more freely, using its 1.0% ceiling for 10-year Japanese government bond (JGB) yields as a reference rather than capping interest rates at that level. Depending on global yields, the BoJ may announce unscheduled bond purchases or fixed rate operations. Over the week, the JGB yield climbed to 0.91% from 0.87%, near its 10-year high.
In the Outlook for Economic Activity and Prices, BoJ policymakers upped their fiscal year 2023 and 2024 CPI predictions to 2.8% year on year, above the central bank’s 2% objective. They stated price growth depends on crude oil price estimates and the government’s economic initiatives, and underlying CPI inflation is projected to rise gradually toward the price stability objective.
Government announces budgetary stimulus amid declining voter support
A new fiscal stimulus package costing over USD 110 billion was launched by Japan to support GDP and assist people weather rising costs. The proposals include income and residential tax reduction and low-income cash handouts. Growth enhancement is also included. The announcement comes as Prime Minister Fumio Kishida’s administration is losing support due to rising inflation’s impact on voters’ purchasing power.
China
Stocks in China rose as speculation that U.S. interest rates may have peaked countered fears over slowing growth. The blue chip CSI 300 surged 0.61% and the Shanghai Composite Index 0.43%. The Hong Kong Hang Seng Index rose 1.53%, according to FactSet.
October saw China’s factory activity decline. As production slowed, the manufacturing PMI dipped to 49.5 in October from 50.2 in September. The nonmanufacturing PMI fell to 50.6 from 51.7 in September. (Over 50 indicates growth.) The private Caixin/S&P Global manufacturing activity survey declined to 49.5 in October from 50.6 in September. The private services activity survey rose marginally but behind the consensus estimate.
More indications of China’s property collapse raised market fears about a crucial economic driver. According to China Real Estate Information Corp., top 100 developer new home sales dipped 27.5% in October, dropping from 29.2% in September. The central bank reported that real estate loans fell to RMB 53.19 trillion in September from the previous year, indicating a sector slowdown. Loans fell RMB 100 billion year-over-year for the first time since 2005.
Despite recent signs of demand recovery after Beijing’s stimulus measures, many investors still worry about China’s housing market downturn. China is anticipated to reach its 5% GDP growth objective in 2023, but many commentators say the economy is weak due to insufficient government housing support. S&P Global Ratings predicts that property sales could drop 25% from 2022, lowering China’s GDP growth to 2.9% next year.
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