The Week in the Markets

A very light week for macroeconomic data, where most markets finished in the negative, with the rise in 10-year bond yields being the main driver of this performance. Expectations for interest rate cuts in the US have fallen significantly (see graph below) due to a combination of high US fiscal spending (regardless of the new president), the strength of economic data in recent weeks, and a rebound in inflation (which we believe is temporary and, along with the labor market, should continue its cooling trend).
The highlight of the week has been Tesla’s performance, which rose more than 20% after reporting very strong resultsand increasing sales expectations for 2025. This, along with NVIDIA (once again the most valuable company in the world), has caused the Mag7 to widen the gap even further with other segments by capitalization this year. By sectors, there’s little to comment on, it’s clear that Tesla is part of Discretionary Consumption (“Best stocks of the week” graph below).
The Equity Factors table clearly reflects what the week has been like. It was very bad for mid and small caps, while large caps fell but very slightly, clearly distinguishing between growth, which closed even in the green, and value, which dropped alongside the other segments.
A very good week for commodities, especially for European natural gas (2024 highs due to 5.1 mmcm/d halt in Norway and geopolitical tension) and US natural gas, despite the fundamentals really pointing in the opposite direction.
We saw again a typical pattern during negative weeks for the markets, where gold, the dollar, and the VIX closed positively. We are two weeks away from the US presidential elections, and although recent polls show a clear winner, we do not expect volatility to spike (we have been discussing various strategies for this for months, all of which are proving quite effective).
Highlights of the week

As we can see, the change in expectations over the last month regarding interest rate cuts has been quite considerable, especially in this last week. Shortly after the last rate cut, the market expected two more cuts to finish the year and end 2025 around 300 bps; now, only one rate cut is anticipated in December (meaning rates will be held in November) and just three throughout 2025.
The main driver of these movements is that October has been a month with fairly good macro data, both in terms of employment and PMIs. Additionally, the CPI came in slightly above expectations. However, we suspect that the employment data has some electoral character and that the CPI will continue to decrease toward the target in the coming months. After the volatility of the elections, what could mainly support this rise in yields and lower expectations for rate cuts is the high fiscal spending in the US (which both candidates are advocating), but a divided Congress would likely curb significant fiscal initiatives, stabilizing long-term yield expectations. For now, there is volatility, and in two weeks, we will have a clearer picture. This is a topic too relevant not to monitor weekly.

Another relevant point we want to highlight is the huge volume of money currently held in Money Market Funds. In the past, we’ve observed that a significant portion of these assets flows into the stock market when interest rates start to decline (as Money Market Funds yield lower returns). We believe this pattern can repeat in the coming months.
Europe
Eurozone business activity remained weak in October, with declining new orders and a composite PMI at 49.7, slightly above September’s 49.6 but still indicating contraction. France and Germany were significant contributors to this slowdown.
Following comments from several central bankers (France, Portugal, Finland, etc.) this week regarding the risk that the ECB may be falling behind the curve, a 50 bps cut for December has been put on the table, although, for now, everything points towards a 25 bps cut
Japan
Ahead of Japan’s general election on this Sunday, the yen weakened against the USD. Core CPI, rose 1.8% YoY in October, slightly above expectations but lower than September’s 2.0%.
Some interesting Data about markets this week & YTD

Earning Season
As we mentioned, Tesla has been the standout company of the week, beating market expectations and announcing that it expects a sales increase of between 20% and 30% for next year. Similarly, we have observed ongoing weakness in the discretionary consumer sector, particularly in industries that were greatly boosted by post-COVID effects, such as RVs, which seem likely to face several more difficult quarters. Data from boat manufacturers has also been poor, although they have been less punished in the market.

We will publish updates for restaurants and boat manufacturers to track this earnings season. Additionally, we recently added another person to the team – Iñigo – who, among other things, will handle everything related to the beverage industry (where we will cover the entire supply chain, from glass, barrels, and grapes… to other alcoholic beverages beyond wine).
This upcoming week is one of the most important of this earnings season—not only due to the high number of companies reporting but also because nearly all of the Mag7 (Apple, Microsoft, Amazon, Meta, and Alphabet) will release their results.
