What Happened?
U.S. stocks extended their gains for the sixth straight week, with the Nasdaq leading the way, driven by Netflix’s impressive earnings. The S&P 500 and Dow Jones also reached record highs, buoyed by strong corporate earnings, better-than-expected retail sales, and declining jobless claims. Investors were encouraged by signs of resilience in consumer spending, despite some headwinds in the economy. Additionally, 38 stocks in the S&P 500 hit all-time highs, reflecting broad optimism. Treasury yields dipped slightly but remained high, indicating market anticipation of a potential 25-basis-point rate cut by the Federal Reserve in November.
From a sector perspective, Energy (-2.7%) and Healthcare (-0.5%) underperformed, driven by a decline in crude oil prices and uncertainties surrounding potential policy changes ahead of the upcoming elections. Meanwhile, Utilities (+3.4%) and Real Estate (+3.0%) led the rally, benefiting from their traditionally defensive nature during periods of economic uncertainty. The drop in commodity prices, including oil, may help ease inflationary pressures in the months ahead. Gold, on the other hand, reached all-time highs, reflecting ongoing market concerns about inflation and global risks. Investors are also keeping a close eye on next week’s housing data and corporate earnings reports, which could influence future market movements and decisions by the Federal Reserve.
Strong Discretionary Spending Buoys US Retails Sales in September
- Retail sales up 0.4% last month; August unrevised
- Core retail sales jump 0.7%; August gain unrevised at 0.3%
- Weekly jobless claims fall 19,000 to 241,000
- Continuing claims rise 9,000 to 1.867 million
The key takeaway – In September, U.S. retail sales rose, likely aided by lower gas prices which increased consumer spending at restaurants and bars, signaling strong economic growth into the third quarter. This boost in sales was also supported by increased purchases in clothing and various other retail sectors. Despite a slowdown in labor market momentum, low layoff rates and wage gains continue to support consumer spending. This strength in consumer behavior suggests resilience in the economy, keeping expectations of a 25 basis point interest rate cut by the Federal Reserve intact, as economic growth remains strong heading into the fourth quarter.
US Jobless Claims Fell to 241,000 Better Than Expected
- Retail sales increased a seasonally adjusted 0.4% on the month, up from the unrevised 0.1% gain in August and better than the 0.3% Dow Jones forecast.
- Initial unemployment claim filings totaled a seasonally adjusted 241,000, a decline of 19,000 and lower than the estimate for 260,000.
The key takeaway – U.S. unemployment claims fell to 241,000 last week, down from 260,000, despite disruptions from recent hurricanes. This decline suggests resilience in the labor market, easing concerns about a significant softening. The lower-than-expected claims indicate that businesses are not ramping up layoffs, even in the face of natural disasters. For markets, this could imply that economic growth remains steady, likely reinforcing the Federal Reserve’s gradual approach to rate cuts while maintaining a focus on inflation and overall economic stability. Stock futures rose in response, signaling optimism.
Chinese Growth Comes in Cooler as Investors Pin Hopes on Stimulus
- China’s Q3 economic growth slowed to 4.6%, slightly down from the previous quarter, as property market struggles and cautious stimulus measures hindered recovery.
- Beijing introduced stimulus actions like potential interest rate cuts and plans for additional government borrowing, but investor confidence wavered due to unclear details and the ongoing property crisis.
The key takeaway – China’s economy grew by 4.6% in Q3, slightly slower than the previous quarter, as property market woes and cautious government stimulus weighed on growth. While Beijing recently implemented several stimulus measures, including potential interest rate cuts and a larger fiscal package, uncertainty remains over their effectiveness. Despite temporary boosts like stronger home sales during a holiday week, the property crisis persists, with home prices in many cities continuing to decline. Investors remain cautious, with Chinese stocks fluctuating between optimism and concerns about long-term economic recovery.
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