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
Shutdown Continues: The government shutdown that began on October 1st persisted during the week with no resolution in sight, with some experts anticipating it will surpass the 35-day shutdown from President Trump’s first term to become the longest on record. While most government workers are being furloughed and will be paid retroactively, the Trump administration is seizing on the opportunity to permanently fire 10,000 or more workers, although a federal judge has temporarily blocked those firings on grounds that they are politically motivated retribution. Economists estimate each week that the government remains closed reduces GDP by about 0.1% to 0.2%. The travel industry is expected to lose $1 billion per week as national parks and museums are shuttered, and small businesses are also particularly vulnerable since the US Small Business Administration typically provides around $860 million per week in loans.
Regional Bank Worries: Market volatility picked up on fears of a possible repeat of 2023’s regional bank failures after disclosure of losses on bad loans issued by Zions Bancorp (ZION) and Western Alliance Bancorp (WAL). The news followed some recent high-profile defaults from private credit markets, triggering fears that a wider credit crisis could be on the horizon. Fortunately, the news broke during the busiest week for quarterly earnings from regional banks, which were overwhelmingly positive and helped calm investor worries.
Earnings Season Commences: Major US financial institutions reported earnings during the week, delivering yet another strong quarter of results. Goldman Sachs (GS) grew revenues 20% year over year, easily beating earnings estimates. JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC), and Citigroup (C) also posted strong earnings, leading to a sector-wide rally in financial stocks.
CHART OF THE WEEK
The chart of the week shows US soybean exports destined to China, which was formerly the biggest buyer, accounting for 54% of the total US soybeans exported. Soybeans have become a focal point of US-China trade talks as President Xi has leveraged the commodity to counter US tariffs across a wide range of Chinese goods. This past week, President Trump threatened to counter with an embargo on used cooking oil imported from China, which is converted to renewable diesel fuel, although this is largely a symbolic retaliation and will not likely sway China, which has turned to other countries such as Brazil to supply soybeans. The US soybean farmers have requested a government bailout and thus far received $10 billion to compensate for the tariff impact, along with $20 billion in aid for natural disaster relief. The Trump administration has pledged an additional aid package of $10-15 billion for tariff-related losses, although nothing has been approved due to the government shutdown.
