Another Strong Week

Last week, equity markets experienced a notable rally, driven by growing optimism that the Federal Reserve is approaching the end of its rate hike cycle. The S&P 500 index reached the key 4,400 level, which is above its 100-day moving average. Notably, the technology-heavy Nasdaq Index once again outperformed the S&P 500 index and the Russell 2000 index, underscoring the sector’s resilience. However, this rally was concentrated in a small selection of stocks. In fact, an equally weighted version of the S&P 500 index lagged behind its market-weighted counterparty by 1.9%.

Inflation Report Boosts Market Sentiment
This week, the release of the October inflation report by the Bureau of Labor Statistics on Tuesday had a significant impact on market sentiment. The Consumer Price Index (CPI) for October remained unchanged on a seasonally adjusted basis, marking the first month this year without inflationary growth. While shelter and food prices continued to rise; the energy index fell 2.5% month-over-month, primarily due to a 5% drop in gasoline prices. The core CPI, which excludes food and energy, rose 0.2% last month, lower than the 0.3% increase in September.

Following the CPI report’s release, the likelihood of another rate hike in December has dwindled to near zero, according to the Fed Swaps market. The broad market celebrated the news, as high interest rates had been perceived as the biggest headwind to asset appreciation. Both bond and stock prices saw immediate gains, with over 95% of the S&P 500 companies experiencing upward movement, led by financial stocks.

Concurrently, The US dollar weakened against its peer currencies, while oil and gold prices both advanced. Fed official, Austan Goolsbee commented “we still have a way to go.” Although noting progress, he predicted a bumpy road ahead in getting prices down. Despite Fed officials repetitively emphasize their focus on taming inflation, the market is increasingly pricing in the
possibility of a rate cut by mid-2024.

Earnings Season Highlights
As of this Tuesday, 92% of the S&P 500 companies have reported their third-quarter earnings. Among those reported, 82% exceeded earnings estimate, while 15% missed. The average earnings surprise stood at 7.55%, slightly lower than the 7.66% recorded in the previous quarter, but higher than the two-year average.

Nvidia, the world’s most valuable chip-maker, achieved a record high this week following the announcement of an updated artificial intelligence processor designed to handle large data sets more efficiently. The stock has gained more than 240% this year, making it the best performer in the S&P 500 index.

Looking Ahead
In the week ahead, US retail sales and initial jobless claims will provide more insight into the state of the economy. Additionally, after narrowly avoiding a government shutdown in September, Congress extended funding through the upcoming Saturday. The newly appointed house speaker, Mike Johnson, expressed confidence in reaching a deal by the deadline to prevent a shutdown.

On the geopolitical front, US President Joe Biden and Chinese President Xi Jinping are scheduled to meet at the Asia-Pacific Economic Cooperation summit this Wednesday. Anticipated topics range from military communication to economic cooperations, with the primary goal of repairing strained bilateral relations. Despite ongoing tensions, bilateral trade between the US and China amounted to nearly $760 billion in 2022, marking a $34.6 billion increase compared to 2021. Additionally, investments in physical and financial assets between the two countries totaled $1.8 trillion last year.

The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.