The Week in the Markets
This was likely one of the busiest weeks of the year, both in terms of macroeconomic events and earnings reports. 42% of the S&P 500 companies reported, including five of the Mag7, and specifically, these have performed well.
Nevertheless, most indices closed in negative territory due to Thursday’s large drop (almost 2% in the S&P 500, which outweighed the minimal advances from the rest of the week), primarily caused by the PCE data (the Fed’s preferred inflation measure), which pointed to an inflation uptick. This led markets to raise the expected interest rate for closing 2025 by 25 bps compared to the previous weekend (350/375bps) that is to say, only 3 interest rate cuts in 2025
Once again, the VIX was in the spotlight, rising almost 20% (up to 23.5 on Thursday) and closing with a 7.6% increase. That the VIX was trading below 15 at the end of September, given all the events lined up in the following weeks, was inexplicable, and we discussed this in detail.
Similarly, Bitcoin came close to its historical highs. It’s one of the assets most likely to benefit from a potential Trump presidency, but after a reversal in the past two days, it’s fallen back below 70,000.
On the downside, the TTF plunged on Monday’s opening following news from the past weekend about Israel’s decision not to target Iranian infrastructure, and this trend continued all week (we had even expected a steeper decline).
Tuesday brings the U.S. elections, and while we think the fiscal spending proposed by both candidates will support indices in the medium term (beyond potential short-term volatility, take a look at charts on liquidity in the system and the amount of $ in money markets), we do see that the sectors to focus on vary considerably depending on who the next president will be. This doesn’t mean specific companies in one sector or another can’t perform well, but capital flows will shift according to the election results, and understanding this is key to avoiding spending a good amount of time preaching in the wilderness about how great company X is, while watching its stock barely move
Highlights of the week
Labour Market data
In October, non-farm employment saw only a 12,000 increase, far below the 194,000 average over the past year and marking the lowest increase since December 2020. The healthcare and government sectors added jobs (52,000 and 40,000, respectively), while temporary help services lost 49,000 jobs and manufacturing decreased by 46,000 due to strikes. Overall, private payrolls were down about 28,000, the first negative reading since December 2020.
Despite this, the labor market appears to be moderating rather than collapsing as numbers are impacted by last month’s hurricanes and labor strikes
Core PCE
Source: ZeroHedge
In September, the core PCE index increased by 0.25%, resulting in a 12-month rate of 2.7%, while the annualized rates for the previous three and six months were both at 2.3%.
PMI October
The ISM Manufacturing PMI decreased to 46.5 (lowest level since June 2023). Survey participants reported a drop in market demand, cautious behavior from clients, and preparations for possible tariffs on essential materials, particularly in light of a potential Trump victory.
Europe
CPI rose YoY at a slightly higher pace than expected, reaching 2% in October, up from 1.7% in September. This increase reflects the removal of last year’s energy price declines from the annual comparison. Inflation in services held steady at 3.9%, while the CPI Core—which excludes energy, food, alcohol, and tobacco—remained unchanged at 2.7%.
Some interesting Data about markets this week & YTD
Earning Season
It was a key week, with 42% of the S&P 500 reporting, including five of the Magnificent Seven, and none of the big companies missed expectations. In fact, earnings growth for this quarter is on track for a +5% increase year-over-year, surpassing initial estimates of 4%. Notably, Alphabet (Google’s parent company) and Amazon delivered strong results that supported the performance of the Magnificent Seven and helped maintain the major indices this week.
On the positive side, Shake Shack stood out in the restaurant industry, where McDonald’s reported a 1.5% decline in systemwide sales, with Latin America being the only region showing growth. The market has punished Wingstop, which was trading at exorbitant multiples based on its impressive growth in recent years, as it fell short of analyst estimates. Another setback is Campari, which dropped nearly 20% this week.
This upcoming week, many important companies for us will report, such as Excelerate Energy, Epsilon Energy, GOGO, Full House Resorts, and Sanlorenzo, all of which we will cover in detail, along with Ferretti and several companies from the restaurant industry.
