The Week in the Markets

New highs for the S&P 500 came during a week marked by the so-called “Trump Trade,” as markets began pricing in the possibility that he could be the next president of the United States. Small caps, Bitcoin, and the dollar were among the week’s biggest winners.

By Thursday’s market close, the gap between the Russell 2000 and Nasdaq had widened by over 4%. However, strong results from Netflix and Taiwan Semiconductors gave the Nasdaq a boost on Friday, closing the week in positive territory. Earlier in the week, ASML had seen its largest drop since 2008, falling 15% after its earnings report, erasing all of its 2024 gains.

In terms of sectors, Real Estate and Utilities were the best performers, benefiting from falling interest rates, while Energy closed in the red due to a sharp drop in oil prices driven by lower expectations of Israeli attacks on Iran’s oil and gas infrastructure.

In Europe, most major indices closed positively, as the ECB continued its rate cuts. In China, despite a slight rise in the Shanghai Index (local currency), both the Hang Sengand MSCI (in U.S. Dollars) saw sharp declines.

Gold hit all-time highs, up 32% so far in 2024, while the VIX dropped sharply but remained at 18, amid developments in the Middle East and macroeconomic data.

10-year bonds ended the week in negative territory, despite a brief surge on Wednesday following positive retail sales data. This was due to news that the number of building permits and housing starts both decreased in September.

Highlights of the week

Europe

The ECB cut the three main interest rates by 25 basis points as expected:

  • The deposit facility rate was reduced by 25 basis points to 3.25% from 3.50%, as anticipated.
  • The main refinancing rate was lowered by 25 basis points to 3.40%.
  • The marginal lending facility rate was cut by 25 basis points to 3.65%.

The cut was motivated by weaker-than-expected economic activity indicators with the ECB reiterating it will maintain restrictive policies as long as necessary

The ECB acknowledged that “the disinflationary process is on track,” and analysts expect further rate cuts. Europe’s manufacturing and macroeconomic indicators are lagging behind the U.S., and the ECB faces two choices: cut rates more aggressively than the U.S., potentially weakening the euro, or match the U.S.’s pace, risking further damage to the economy. For now, it seems to be leaning towards the first option.

 

Annual inflation in Europe fell to 1.7% (down from the 2.2% reported last month), which suggests to us (as well as to the market) that rates are likely to be lowered again in December.

 

US Retail Sales

U.S. retail sales grew 0.4% MoM in September 2024, exceeding both August’s 0.1% rise and expectations of 0.3%. Despite this, annual growth slowed to +1.7%, the weakest since January. The control group saw sales rise for the fifth straight month (+0.7%), making a significant GDP slowdown unlikely. Notably, unadjusted retail sales dropped 7.5%, the largest positive seasonal adjustment on record for September.

 

Some interesting Data about markets this week & YTD

 

Earning Season

For this upcoming week, many airlines, the first reports from restaurants, and also other industries of our interest such as boat manufacturers and dealers. Likewise, the Mag 7 begin, with Tesla on Wednesday