WEEKLY MARKET SUMMARY
Global Equities: It was a jam-packed week for stocks with big tech earnings, a Fed meeting, and US-China trade talks all on the calendar. Strong earnings propelled some mega-cap stocks to double digit gains, but overall market breadth was poor with many stocks declining during the week. For the week, the S&P 500 finished up 0.7% and the Dow Jones Industrial Average gained 0.8%. The tech-heavy Nasdaq Composite fared better with a weekly gain of 2.2%. Small cap stocks, which are more interest rate sensitive, fell -1.3% during the week as the Fed rate cut did not immediately lower borrowing costs. Developed international market stocks ended -0.6% lower, while emerging market stocks closed out the weekly session with a 0.4% gain.
Fixed Income: Treasury yields turned higher after the Fed delivered a rate cut but revealed dissenting views on the decision and struck an overall hawkish tone. The US 10-Year Treasury yield ended the week higher at 4.1%. Corporate bond issuance was dominated by Meta (META), which issued a $30 billion bond offering to help fund artificial intelligence investments. This follows other big debt offerings from tech companies, such as Oracle’s (ORCL) $18 billion issuance in September.
Commodities: US West Texas Intermediate (WTI) crude oil prices were slightly lower by week’s end, trading at just under $61 a barrel. Increased OPEC production was cited on Exxon’s (XOM) earnings call as a driver of downward pricing pressure during the quarter. Gold prices remained under pressure following their large one-day selloff the week prior, briefly regaining the $4,000/oz mark but ending the week at $3,995/oz.
WEEKLY ECONOMIC SUMMARY
Fed Decision: The Fed delivered another quarter-point rate cut, but the decision featured two dissenting, opposing opinions with Stephen Miran calling for a 50 basis-point cut and Jeffrey Schmid preferring no cut. Fed Chair Jerome Powell was more cautious than usual during his press conference, stating a December rate cut is “not to be seen as a foregone conclusion. In fact, far from it.” Powell noted that the combination of rising inflation and worsening employment puts the Fed in a difficult position as it can only deal with one side of the dual mandate at a time. Powell also noted the economy has become increasingly “bifurcated” as high-income families spend freely while middle- and low-income families are facing increasingly greater economic stress.
Trump-Xi Meeting: A long-awaited meeting between President Trump and Chinese President Xi Jinping took place Thursday, with the two leaders each offering modest concessions and pulling back from escalatory tariffs that were set to begin November 1st. Under the terms agreed upon, the US will reduce its punitive fentanyl-related tariff from 20% to 10%, bringing the overall surcharge on Chinese goods down from 57% to 47%. In return, China will suspend its rare earths export controls for one year, and resume purchasing soybeans and other agricultural products. Tit-for-tat port fees will also be suspended by both sides. The meeting marked a step in the right direction for US-China relations, albeit a slight one.
Tech Earnings Impress: Five of the “Mag Seven” tech behemoths reported earnings, with mostly positive results. The big winners were Alphabet (GOOG) and Amazon (AMZN) who reported cloud business growth of 34% and 20%, respectively. Shares of both companies surged, with GOOG rising around 9% and AMZN up as much as 12% post-earnings. Microsoft (MSFT) Azure cloud business grew at an even more impressive rate of 34%, but shares declined by -2% due to higher-than-expected spending to procure chips. Also reporting was Apple (APPL), whose shares got a modest post-earning bounce on solid iPhone sales and impressive services revenue. The sole disappointment of the bunch was Meta (META), which lost over -9% after earnings, which were solid aside from a one-time $16 billion “valuation allowance” tax hit, stemming from accounting changes in the “One Big Beautiful Bill”.
CHART OF THE WEEK
The Chart of the Week is a one-month comparison of the “Magnificent Seven” stocks (AAPL, AMZN, GOOG, META, MSFT, NVDA, TSLA), represented by the MAGS ETF, compared to the market-capitalization-weighted S&P 500 (using the SPY ETF) and the equal-weight S&P 500 (using the RSP ETF). The Mag 7 stocks were big outperformers this week, reinforcing their dominance over the rest of the stocks in the S&P 500 and driving nearly all the index gains. The S&P 500 has become so top heavy that on October 28th 80% of the stocks in the index were negative for the day, but the strength of the big tech names kept the overall index in positive territory. While the growth of big tech has resulted in solid year-to-date gains, investors should also recognize that overconcentration risk has grown, and the benefits of diversification within the index have diminished.
