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. Stocks Rose Last Week as Magnificent-7 and AI Stocks Surged

      Stocks rose last week as the continued strength of the mega-cap “Magnificent-7” lifted large-cap US equity indices. Artificial intelligence (AI)-related stocks powered higher, including new all all-time highs for Microsoft. Small-caps underperformed mega-caps by a significant margin. The Russell 2000 Index’s more than 3% sell-off reversed all the prior week’s relative strength.

   2. Powell’s Hawkish Speech Pushes Up 2-year UST Yields, But Confounding Factors Staunch 30-Year Yields

      Fed Chairman Powell’s more hawkish than expected speech at an IMF event in Washington pushed yields on the 2-year US Treasury (UST) higher as 30-year UST yields were unchanged despite a historically weak auction. Followthrough by investors, which would have sent 30-year yields higher, may have been staunched by confounding factors, including strong Treasury auctions earlier in the week, a cyberattack on a clearinghouse, and the “halo” from last week’s dovish quarterly refunding announcement. We view last week’s fixed income price action as a bullish sequence. Holistically, we view decreased volatility in rates markets, especially for long-term rates, as a significant equity upside catalyst.

   3. Lowest Core Price Increases in Over Two Years Boost Fed’s Fight Against Inflation

      October’s CPI reading brought good news to the Fed’s continued fight against inflation, as core price levels increased at their lowest rate in over two years. Earnings reports from many large retailers will give a differentiated and important look at consumer spending. A summit between Biden and Xi on Wednesday could generate market-moving headlines, especially if there are agreements on AI cooperation as rumored.

What Happened Last Week?

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

• Bullish Artificial Intelligence sentiment pushed large-cap US equities higher last week, with the “Magnificent-7” leading.
• Not all equities participated in the rally. Small caps sold off, giving up outperformance from the prior week.
• Powell’s hawkish speech and mixed outcomes from last week’s Treasury auctions catalyzed volatility in rates markets.

What We’re Watching This Week

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

• October CPI was a positive surprise, as core inflation rates came in cooler than expected.
• A pulse on the consumer from retailers earnings reports, in addition to October retail sales data.

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