The FCMS Investment Committee is pleased to share the latest insights on the current financial market and economic developments.

Market Perspectives

Here are the top things from our FCMS Investment Committee on current financial markets and economic developments:

1. 1. A Turbulent Week and Quarter Come to an End as Long-Term Yields March Higher

      In a choppy week to end a choppy quarter, long-term yields continued their steady march higher as stocks ended mostly lower. While yields have been driving equities and other markets for months, the last week and a half have seen an interesting shift in the bond price action – the front end of the yield curve has remained unchanged around 5% while long-term yields have repriced substantially higher. This change in price action is likely more technical than Fed- or economy-related; our view is we are likely to be at a near-term peak in bond yields. After an increase of over 70 bps to the benchmark 10-year yield in the third quarter and the well-known negative seasonals in September, such a peak would be a helpful tailwind to equities as we head into the end of the year.

   2. Small-Cap Stocks Outperform in Challenging Quarter Driven by Short-Covering Flows

      Last week’s price action seemed more flow-driven and technical than fundamentally motivated. After a challenging quarter, short-covering flows likely drove domestic small-cap outperformance; the tech-heavy NASDAQ 100 also outperformed the S&P 500. Sector performance in the US had a pro-cyclical and anti-defensive theme, but much of this felt flow-driven. International stocks lagged as dollar strength continues to weigh on non-US shares. Outside of the regular macro catalysts, upcoming earnings should reveal new themes.

   3. Deal to Avoid Government Shutdown Provides Positive Market Sentiment With Tepid Reaction

      The weekend’s surprise deal to avoid a government shutdown is positive for market sentiment, but the early reaction has been tepid. Investors are closely watching price action in the bond market; some of the increases in yields and the rally in the dollar could have been positioning for a failure to strike a deal in DC. Regarding upcoming data, the job market is in focus; the September payrolls report on Friday and job openings on Tuesday are the week’s highlights.

What Happened Last Week?

Here is a recap of the top things that happened last week:

• • At last week’s end, stocks and bonds were mostly in the red for the quarter.

• • Once again, long-term Treasury bond yields have increased to new highs for this cycle.

• Last week’s price action was largely influenced by technical factors such as rebalancing at quarter-end and short covering.

What We’re Watching This Week

Here is a recap of what we’re watching for this week:

• • The markets view the last-minute deal to avoid a government shutdown positively, but early reactions show a lack of confidence.

• • The September payrolls report and job openings data are two important economic indicators to monitor.

• Investors are watching Treasury yields for signs of a potential peak that could cause near-term strength in equities.

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