Stock markets snapped their six-week streak of gains as rising bond yields spooked investors. The S&P 500 (SPX) declined by 0.96% on the week, while the Dow Jones Industrial Average (DJIA) dropped by 2.68%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) closed the week in the green, rising by 0.16% and 0.14%, respectively. Tech stocks were lifted last week by blockbuster quarterly results from Tesla, the first member of the “Magnificent” cohort to release its earnings this season.
Bond prices have been on the downslope since the Fed delivered its first rate cut, with the trend finally getting on the stock-investor radar last week. The bond market’s apparent disbelief in the continuation of fast monetary easing in the wake of stronger-than-expected economic data presented a strong headwind for equities. The improving consumer sentiment and robust durable goods numbers added to the rising yields.
This week will be crucial to the bond markets in reestablishing or overturning the recent trend, which will in turn affect the stock market. Investors are focusing on the preliminary estimate of Q3 economic growth, as well as on the Fed’s preferred measure of inflation, Core PCE, and the latest data reflecting the state of the job market.
Indeed, job market numbers have been one of the main culprits for the steady rise in bond yields in the past month, as more robust than expected job growth has painted a picture of a stronger-than-expected economy, changing investor expectations for inflation and Fed policy. The latest two monthly job reports featured stronger-than-projected wage growth, adding to speculations that higher inflation rates may return.
Taking into account robust job and wage growth, the markets are currently pricing in zero chances of another jumbo cut in November, a 95% chance rates will fall 25 basis points, and a 5% chance they will remain on hold.
Four Economic Events
Here are four economic events that could affect your portfolio this week. For a full listing of additional economic events, check out the TipRanks Economic Calendar.
» Q3 2024 GDP Growth Annualized (advance estimate) – Wednesday, 10/30 – This report will provide an early insight into changes in GDP from the previous quarter. Economists project that the pace of growth remained unchanged from Q2’s 3% annualized rate. A higher-than-forecasted reading could lead to a delay in expectations for Fed rate cuts, while a lower-than-expected reading could provide the central bank with data to support further rate reductions.
» September’s Core Personal Consumption Expenditures (Core PCE) – Thursday, 10/31 – This report reflects the average amount of money consumers spend monthly, excluding seasonally volatile products such as food and energy. FOMC policymakers use the annual Core PCE Price Index as their primary inflation gauge.
» October’s Nonfarm Payrolls and Unemployment Rate – Friday, 11/01 – The Nonfarm Payrolls and Unemployment reports present the number of new jobs created during the previous month, along with the percentage of people actively seeking employment in the previous month. These reports are two of the most important economic indicators, as policymakers follow the shift in the number of positions as it is strongly associated with the overall health of the economy. One of the Federal Reserve mandates is full employment, and it considers labor market changes when determining its policy decisions.
» October’s ISM Manufacturing PMI – Friday, 11/01 – This report shows business conditions in the U.S. manufacturing sector and serves as a significant indicator of the overall economic conditions. PMIs are considered one of the most reliable leading indicators for assessing the state of the U.S. economy, helping analysts and economists anticipate changing economic trends.
For more exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.
