WEEKLY MARKET SUMMARY

Global Equities: US equities were set for another week of gains, but a renewal of trade war rhetoric with China sent major indices sharply lower on Friday, resulting for weekly losses across the board for US stocks. The S&P 500 ended the weekly session with a decline of -2.7%, the Dow Jones Industrial Average fell -1.9%, and the Nasdaq Composite ended -3.6% lower.  US small cap stocks also sold off on Friday, resulting in a weekly loss of -3.0%. Developed international stocks also ended the week on a down note, shedding -1.8%, and emerging markets finished down -3.7%.

Fixed Income: The 10-Year US Treasury yield fell sharply to 4.06% on a flight to safety and increased likelihood of more rate cuts. Contagion risk from the private credit markets impacted corporate bonds with mixed impact. Investment grade corporate credit ended the week 0.3% higher while and high yield bonds pulled back -0.6%.

Commodities: US West Texas Intermediate (WTI) crude oil prices slipped below $60 a barrel after the announcement of a Gaza peace deal. Gold prices slipped sharply on Thursday, falling below the $4,000/oz mark, but rebounded as stocks sold off Friday and ended the week at $4,030/oz.

WEEKLY ECONOMIC SUMMARY

Shutdown Continues: The government shutdown entered its second week, with no resolution in sight despite plenty of finger pointing from politicians. The stalemate has delayed the release of crucial economic data, including the September Jobs report. Some furloughed Bureau of Labor Statistics employees were summoned back to work to compile the Consumer Price Index data release due out October 15th, since this data is required to compute the Social Security Cost of Living Adjustment (COLA).

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).