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Generally speaking, we just had another strong week for the stock market. Mega cap stocks, which have been regarded as strong for a long time, fell off hard as earnings news rolled in this week. Apple ($AAPL) was a rare exception among the tech giants, trading up after reporting quarterly results. Meta Platforms ($META), Alphabet ($GOOG), Microsoft ($MSFT), and Amazon ($AMZN) and other big tech firms all suffered large losses following their earnings report.
The struggling mega caps didn’t weigh down the broader market as you may have guessed. A pack of blue chip companies provided a welcome distraction with good earnings news and guidance. Honeywell ($HON) and Caterpillar ($CAT) were two of the biggest boosts of the mega cap stocks and led the S&P 500 industrial sector to close with the biggest weekly gain, up 6.7%. Other top performing sectors this week included utilities (+6.5%), financials (+6.2%), and real estate (+6.2%).
Meanwhile, the losses incurred by Meta Platforms and Alphabet drove the communication services sector to close down 2.9% on the week. It was the only sector to end the week with a loss, which feels like a very rare occurrence considering recent history! Another top laggard was the consumer discretionary sector (+0.7%). The remaining six sectors all closed with gains of at least 2.8%.
Small cap stocks were a specific pocket of strength this week. The Russell 2000 gained 6.0%, which was more than the 3 major averages.
Other notable movers included Chinese stocks, and U.S. stocks with high exposure to the Chinese market, which sold off sharply in the first half of the week. This followed President Xi Jinping securing an unprecedented, third five-year term to serve as China’s leader. That wasn’t surprising, but it did come as a shock to many investors that he managed to surround himself only with loyalists who are apt to help him pursue tighter regulations and the continuation of China’s zero-Covid policy.
JD.com ($JD) and Pinduoduo ($PDD) were losing standouts for Chinese stocks while Las Vegas Sands ($LVS) and Starbucks ($SBUX) also suffered heavy selling on concerns related to Xi’s power grab. By the end of the week, however, these names were able to reclaim some of their losses.
There is a growing belief among market participants that the Fed will soften its approach after the November meeting, with expectations of 75 bps and then 50 bps, respectively for the next two hikes. The policy move from the Bank of Canada this week further fueled this notion. The Bank of Canada raised its key policy rate by 50 basis points versus an expected 75 basis points. The European Central Bank, however, delivered a 75 basis point increase for its key policy rates, as expected.
This week had a ton of economic data that both supported and undermined the notion that the Fed will soften its approach soon. There is still much uncertainty. Some of the data releases included:
- September Personal Income 0.4% (consensus 0.3%); Prior was revised to 0.4% from 0.3%; September Personal Spending 0.6% (consensus 0.4%); Prior was revised to 0.6% from 0.4%;
- September PCE Prices 0.3% (consensus 0.3%); Prior 0.3%; September PCE Prices – Core 0.5% (consensus 0.4%); Prior 0.5%
- The takeaway from the report is that with continued income growth and a slightly hotter than expected Core PCE price growth, the Fed has an argument to maintain its aggressive with rate hikes.
- Weekly Initial Claims 217K (consensus 220K); Prior was revised to 220K from 214K; Weekly Continuing Claims 1.438 mln; Prior was revised to 1.383 mln from 1.385 mln
- The takeaway from the report is that the initial claims data suggest the labor market continues to hold up well, which of course is something that will continue to draw the Fed’s attention.
- Q3 GDP-Adv. 2.6% (consensus 2.3%); Prior -0.6%; Q3 Chain Deflator-Adv. 4.1% (consensus 5.3%); Prior 9.0%
- The takeaway from the report is that it ends a two-quarter streak of negative GDP prints. It also suggests the economy held up well in the third quarter as it started to acclimate to rising interest rates. Real final sales of domestic product, which excludes the change in private inventories, increased a solid 3.3%.
- October Consumer Confidence 102.5 (consensus 105.5); Prior was revised to 107.8 from 108.0
- The takeaway from the report is that consumers’ concerns about inflation picked up again in October on the back of rising gas and food prices.
Falling Treasury yields were a big support factor for the stock market. The 10-yr Treasury note yield dipped below 4.00%, but ultimately settled the week down 20 basis points at 4.01%. The 2-yr note yield fell nine basis points to 4.42%.
In other news, Rishi Sunak was elected UK Prime Minister.
This week I only had some deep red adds in $INTC and $CMCSA plus some other moves that you can read about in my weekly portfolio update here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.
And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.