Market Pulse

In focus

The spotlight was on mega-cap technology companies last week as earnings season was in full swing. While investors came away largely disappointed in these companies’ reports, equities enjoyed broad gains. Tech giants have driven U.S. equity markets in recent years given their weighting in the S&P 500, but in a week that saw many of these behemoths struggle, the S&P 500 rose almost 4% to its highest level in six weeks.

Third quarter GDP was released last week, growing at an annualized pace of 2.6%, which beat expectations. This report adds to the myriad of data the Federal Reserve (Fed) will have to parse through as it contemplates the future path of monetary policy as it continues to battle elevated inflation.

Investors have been looking for signs that the Fed will have to pivot and be less aggressive with rate hikes. Optimism on this front was evident in bond markets, aided by the Bank of Canada’s decision to hike rates by 50 basis points (0.50%) instead of the expected 0.75%. Additionally, the 10-year U.S. Treasury yield fell on the week, snapping a streak of 12 straight weekly increases, and ending the week just above 4%. These lower yields helped fuel the rally in the equity market. Economic data will be crucial in determining whether this will continue, with key numbers including payroll and unemployment data set to be released this week. 

A look back

• Global equities rallied, closing the week up over 3.3%. The S&P 500 gained nearly 4% to notch its second-straight positive week.
• U.S. Treasury yields declined, and the 2-/10-year curve inversion widened to -0.39%. The 3-month/10-year yield curve, the Fed’s preferred financial conditions gauge, inverted.
• Pending home sales, a leading indicator of housing activity, fell 10.2% in September, far steeper than anticipated. 

A look ahead

• Investors will closely monitor Fed Chair Powell’s comments following the Fed’s meeting this week, where it is widely expected to increase policy rates by 0.75%.
• Earnings season continues, with over 30% of the S&P 500 scheduled to report.
• Economic releases: Fed rate decision, Unemployment Rate, Nonfarm Payrolls, ISM Manufacturing and Services, S&P Global U.S. Services.

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