WEEKLY MARKET SUMMARY
Global Equities: US equities endured a choppy week as credit worries and trade rhetoric spooked investors but ultimately were able to turn out a positive weekly performance. The S&P 500 closed out the weekly session 1.7% higher, the Dow Jones Industrial Average advanced 1.6%, and the Nasdaq Composite gained 2.1%. US small cap stocks rallied on rate cut hopes ahead of the October Fed meeting, gaining 2.4%. Foreign developed market stocks were up 2.5% while emerging markets outperformed with a 4.3% weekly advance.
Fixed Income: The 10-Year US Treasury yield broke below 4% on mid-week volatility before rising back to 4.01% on Friday. Concerns over a potential uptick in corporate credit defaults from private markets spread to the high yield corporate bond sector, but high yield bonds ultimately bounced back with a strong weekly performance, gaining 1% after strong regional bank results calmed investors’ fears.
Commodities: US West Texas Intermediate (WTI) crude oil prices continued their slide following the Gaza peace deal, ending the week at $57.50 a barrel. Gold prices took another leg up in a staggering rally that pushed prices to above $4,300/oz during the week.
WEEKLY ECONOMIC SUMMARY
Fed Minutes: The minutes from the September FOMC meeting showed a significant degree of division, with a vocal minority speaking out against rate cuts due to risks from inflation and a booming stock market that may be encouraging excessive risk taking. Weaknesses in the labor market were viewed as the primary justification for cutting in September, but the market may be overestimating the odds of two more rate cuts in 2025. The latest data from Fed Funds futures markets shows investors are pricing in a 95% likelihood of an October cut and a 92% chance of an additional December cut.
Trade War Escalates: President Trump blindsided investors with a Friday social media tirade, threatening a “massive increase” of tariffs on Chinese products and saying he saw “no reason” to keep a planned meeting with President Xi Jinping at the upcoming Asia-Pacific Economic Cooperation summit in South Korea. The anger stemmed from new Chinese export control regulations on rare earth elements which are crucial for the semiconductor industry. While the stock market plunged Friday on the comments, investors may have already forgotten the “TACO” (“Trump Always Chickens Out”) trade, as President Trump reversed course over the weekend by posting, “don’t worry about China, it will all be fine!” on social media over the weekend.
CHART OF THE WEEK
The Chart of the Week is a three-month look at the Philadelphia Semiconductor Index, known as the “SOX”. Semiconductor stocks have been the primary driver of most stock market gains this year and have been on a tremendous run through September and into October. This has led to some concerns of a bubble, with conditions reaching “overbought” levels by technical indicators such as RSI (relative strength index). The price of the SOX “gapped up” twice recently, in mid-September and again at the start of October. Frequently, gaps up in price are filled with a retest, and the second gap was filled on Friday as semiconductors bore the brunt of the selling. The SOX has some support at the 20-day moving average trendline (the green line) but there is also downside risk at play with a possible retest of the 50-day moving average (the blue line).
