The Week in the Markets
A new week of record highs for the S&P 500, making it 45 new highs so far this year. The Dow Jones is also reaching the peak, and the Nasdaq is just shy of it. All of this is happening in a somewhat strange environment, with the VIX closing every day above 20 and the dollar rising for the eighth consecutive day. On a macro level, the CPI data—and Timaraos’ remarks—almost guarantee a 25bps rate cut at the next meeting.
The best sectors of the week were technology, industrial, and financial. The first, mainly thanks to NVIDIA, which surged nearly 8%; the second, due to conglomerate and logistics industries; and financial, thanks to JP Morgan’s earnings falling less than expected and a slight increase in Wells Fargo’s profits, which on Friday kicked off the 3Q24 earnings season.
In terms of market capitalization, NVIDIA was enough to make the Mag7 the best-performing segment by capitalization for the week, despite Tesla’s drop after its much-anticipated event focused on Robotaxis and a decline in Google’s parent company, Alphabet, following reports that the Justice Department was considering asking a federal judge to order a breakup of the company.
Europe followed the upward trend, although France’s CAC lagged behind, partly due to an increase in corporate taxes for companies with annual revenues of more than €1 billion. Another sign of the situation in Europe, where a new wave of tax hikes is on the horizon.
The negative note of the week came from China, which, after huge gains in the last two weeks due to announced stimulus measures, fell 6.5% in the biggest capital outflow in recent years (see chart below)
Long-term bond yields increased following the inflation data, with the yield on the benchmark 10-year U.S. Treasury note reaching an intraday high of 4.12%, its highest level since July 31.
Highlights of the week
CPI
The annual inflation rate (September) decreased to 2.41% from 2.5%, the lowest since February 2021, but slightly above the 2.3% forecast (MoM rose by 0.16%, above the forecasted 0.1%.)
- Housing prices increased by 0.2%, and food prices by 0.4%, together accounting for over 75% of the monthly inflation rise. Meanwhile, energy prices dropped by 1.9%.
- The 6-month annualized rate fell to 1.6%, the lowest since September 2020, while the 3-month rate rose to 2.1% from 1.1% in August.
Core inflation (excluding food and energy) rose to 3.26% from 3.2% in August (MoM increased by 0.34%, up from 0.2% in the previous month, and higher than the 0.2% market expectation)
– The 6-month core annualized rate dropped to 2.6%, while the 3-month rate increased to 3.1% from 2.1%.
The “SuperCore” inflation (services excluding housing) increased to 4.6%YoY, driven by higher transportation and healthcare costs.
Labour Market
The Labor Department reported an unexpected rise in weekly jobless claims to 258,000, marking the highest level in 14 months. While Hurricane Helene contributed to the increase, Michigan also saw significant job losses. Continuing claims climbed as well, reaching 1.86 million, the highest since late July.
Average hourly wages rose 1.5% year-on-year, above the 1.3% forecast, while weekly wages increased by 0.9%, in line with expectations.
China
China is ramping up economic stimulus efforts to boost growth. The government plans to increase investment, support low-income groups and new graduates, and continue issuing special sovereign bonds in 2025 for key projects, with RMB 100 billion allocated to strategic areas. The People’s Bank of China introduced a RMB 500 billion swap facility to provide liquidity for institutional investors, as part of a broader stimulus package that includes interest rate cuts.
However, consumer spending during a recent holiday remained below pre-pandemic levels, with only modest increases in passenger traffic and spending, and box office revenues falling compared to last year.
This week, we have seen the largest outflows of money from Chinese equities in years (right after the largest inflow recorded last week).
Some interesting Data about markets this week & YTD
