Weekly Market Recap: Earnings, ECB Rate Cut, and Fed Expectations

Market Overview

U.S. equities continued their upward trend, with the S&P 500, Nasdaq, and Dow Jones posting gains of 0.9%, 0.9%, and 1.0%, respectively. Value stocks led over growth, while small caps surged 2%, driven by mid-week sector rotation. Financials were top performers, as Morgan Stanley, Goldman Sachs, Bank of America, and Citigroup exceeded earnings expectations. Technology stocks faced volatility, with mixed results from ASML’s downgraded forecast and Taiwan Semiconductor’s (TSM) positive earnings.

International markets saw varied performance. European stocks rebounded after the European Central Bank (ECB) implemented a second consecutive 0.25% rate cut, signaling a shift in focus from inflation to economic growth. Luxury goods companies like LVMH and Christian Dior reported weak earnings amid soft Chinese demand. In Asia, Chinese equities gained after better-than-expected Q3 GDP results and reduced bank reserve ratios, despite lackluster stimulus announcements. Japan slipped on mixed data, while Taiwan rallied on TSM’s earnings. South Korea, India, and Hong Kong ended the week lower.

Commodities weakened overall. Crude oil prices fell amid geopolitical developments and concerns over China's economic outlook. Gold hit new highs above $2,700 per ounce, supported by geopolitical uncertainty and falling Treasury yields. The U.S. dollar gained for the third straight week, driven by shifting expectations for slower Federal Reserve easing, while the euro weakened following the ECB’s rate cut.

Federal Reserve Insights and Economic Roundup

The fixed-income market saw limited movement, with the two-year yield ending at 3.97% and the 10-year yield at 4.08%. Retail sales data exceeded expectations, showing resilient consumer spending in September, which complicated rate-cut expectations. Strong labor data also dampened hopes for aggressive Fed easing, though the market continues to price in potential rate cuts at the November and December meetings.

In real estate, single-family construction is rebounding while multi-family projects slow. Despite elevated mortgage rates, builders are capitalizing on an improving rate environment, which may ease housing prices over time.

The Week Ahead

Key economic reports expected this week include:

• Monday: Leading Index (Sep)
• Tuesday: Philadelphia Fed Non-Manufacturing Index (Oct), Richmond Fed Manufacturing Index (Oct)
• Wednesday: MBA Mortgage Applications (Oct 18), Existing Home Sales (Sep), Fed Beige Book release
• Thursday: Jobless Claims (Oct 19), S&P Global PMI data (Oct preliminary), New Home Sales (Sep)
• Friday: Durable Goods Orders (Sep preliminary), University of Michigan Sentiment (Oct final)

Investors will closely watch these data points for insights into the Fed's next moves and potential shifts in economic momentum.