Market Summary
U.S. equities extended their record-setting run last week, fueled by mega-cap strength, optimism over U.S.-China trade progress, and a continued AI-driven rally. The S&P 500 gained ground early in the week to notch multiple record highs before moderating later as investors digested a mixed batch of earnings and Federal Reserve commentary.
Economy & Fed Policy
Economic data took a back seat to earnings and policy headlines this week, though indicators reflected steady but subdued momentum.
The Conference Board’s Consumer Confidence Index slipped slightly to 94.6 in October, suggesting consumer sentiment remains soft compared to last year’s levels.
Housing data was mixed: the FHFA Home Price Index rose 0.4% in August while the Case-Shiller Index showed a modest 1.6% annual increase, both pointing to a stabilizing but uneven housing market. Pending home sales were flat in September following a strong August gain, and mortgage applications rose as lower rates spurred some demand.
Overall, the data portrayed a resilient but cautious consumer backdrop heading into year-end.
The Federal Reserve’s midweek decision dominated the macro narrative. As widely expected, the FOMC cut the federal funds rate by 25 basis points to a range of 3.75%–4.00%, but Chair Powell’s remarks tempered expectations for further easing. He emphasized that another rate cut in December was “not a foregone conclusion,” noting mixed committee views on the inflation outlook and growth trajectory.
Markets quickly repriced the odds of a December cut down to around 65%, from over 90% earlier in the week. Treasury yields rose modestly in response, with the 10-year closing at 4.10% and the 2-year at 3.61%. Later comments from Fed officials echoed this cautious tone, citing still-firm inflation and resilient labor conditions as reasons to pause after October’s move.
Earnings
Corporate results continued to drive equity performance, especially across the Mag Seven.
Technology and AI: NVIDIA surged past $200 and briefly topped $5 trillion in market cap after unveiling new AI chip orders and a $1B stake in Nokia. Semiconductor peers like Teradyne, Seagate, and Western Digital also reported strong results. However, NVIDIA and other chipmakers faced end-of-week profit-taking.
Communication Services: Alphabet crushed earnings expectations, driven by 34% cloud growth and a 46% increase in AI-related backlog, propelling shares to record highs. Meta Platforms, despite beating estimates, slumped over 11% after flagging heavier 2025 AI spending, reigniting profitability concerns.
Consumer Discretionary: Amazon was the standout, soaring nearly 10% after reporting a sharp rebound in AWS growth and upbeat guidance. Tesla rebounded midweek and added to gains Friday. Apple posted solid results but traded unevenly as investors weighed slowing device sales.
Industrials and Energy: Caterpillar delivered a double-digit gain after an earnings beat, while Chevron outperformed on strong results.
Overall, mega-cap earnings reinforced the market’s AI and growth narrative but also underscored valuation and spending risks as tech capital intensity accelerates.
Trade Tensions
Markets found an additional tailwind from improving U.S.–China trade dynamics. Reports surfaced that both nations reached a framework deal to avert new 100% tariffs on Chinese imports, with Presidents Trump and Xi expected to finalize terms this week.
Treasury Secretary Scott Bessent noted that the agreement will likely include expanded Chinese purchases of U.S. goods, relaxed rare earth restrictions, and a resolution regarding TikTok’s ownership. The shift marked a notable de-escalation in trade rhetoric and contributed to Monday’s broad market rally.
Other Market Developments
Beyond mega-cap momentum, broader participation remained limited. The S&P 500 and Nasdaq posted multiple record highs early in the week but later consolidated as profit-taking set in. The equal-weighted S&P 500 trailed sharply, highlighting the narrow leadership from a handful of large names.
Small-cap and mid-cap indices also touched records before fading as rate-cut hopes waned. Sector performance was mixed: technology, communication services, and consumer discretionary led early, while real estate, staples, and utilities lagged. Energy shares ended the week higher as oil settled near $61 per barrel.
Market breadth improved slightly by week’s end, with advancing stocks outpacing decliners on Friday. Despite rising yields and cooling rate expectations, investor sentiment held firm, buoyed by robust tech results and easing trade tensions.
The equity rally remains firmly anchored by mega-cap and AI enthusiasm, while policy caution and high concentration risk temper broader participation. With most of the Magnificent Seven earnings now behind and Fed easing prospects less certain, upcoming weeks will test whether market leadership can broaden beyond the tech giants.
Week Ahead
With most of the Mag 7 earnings now behind and Fed easing prospects less certain, upcoming weeks will test whether market leadership can broaden beyond the tech giants.
This week, markets will focus on a heavy flow of economic data, including October jobs, ISM manufacturing, and labor cost reports—that could influence expectations for a potential December Fed rate cut.
Several Fed officials are scheduled to speak, offering clarity after last week’s cautious messaging from Chair Powell.
Earnings shift toward second-tier tech and consumer names, providing insight into whether growth is broadening beyond mega-caps.
After a strong run driven by AI and large-cap strength, attention now turns to whether market breadth can improve, and valuations stabilize amid still-elevated yields.
As always, if you have any questions or comments please do not hesitate to reach out.
Michael Neill, CFA