Weekly Market Update
Despite disappointing earnings from mega cap companies Microsoft, Meta (formerly Facebook), Alphabet (formerly Google), and Amazon, the S&P 500 proved to be incredibly resilient as earnings outside of these large cap growth stocks continued to come in better than feared. Furthermore, momentum continues to grow around a potential Fed policy pause/pivot next week and as a result, the frenetic surge in global interest rates since the start of August has reversed. A notable exception to the mega cap earnings weakness was Apple, which rose over 7% on Friday and helped power the S&P 500 to its second consecutive Friday of over 2% returns and an almost 4% weekly gain. As a result, the S&P 500 was able to break above 3,900 for the first time since mid-September and back above its 50-day moving average, both very welcome achievements for bulls.
While the bounce off of the S&P 500 market lows reached on October 12th has been very encouraging, it is important to remember that we have seen similarly sharp but brief relief rallies throughout this year and investors need to brace for two incredibly important events next week: the Federal Reserve meeting announcements on Wednesday (11/2) and the October employment report on Friday (11/4). Friday’s stock market strength notably coincided with the Fed’s preferred inflation metric, personal consumption expenditures (PCE), coming in below expectations (5.1% year-over-year vs. 5.2% estimates), but it is hard to get too optimistic about inflation finally peaking as five of the last six consumer price indices (CPI) have come in hotter than expected. The market is pricing in an over 80% probability for a 75-basis point hike next week, but Fed guidance on future hikes will be particularly important to markets. Ideally the Fed acknowledges the lagged effects of tightening policy so aggressively as well as the downside risks to growth from too many rate hikes too soon. As for the Friday jobs report, a goldilocks release (not too hot, not too cold) is probably ideal for investors and in a perverse way a rise in the unemployment rate from last month’s surprisingly low 3.5% might be ideal for markets if it proves to the Fed that its tightening is finally having an impact on labor and wages.
Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder