What Happened Last Week
- Price Action: Fresh all-time highs in U.S. large caps on bank earnings and re-kindling of the AI narrative.
- Uncertainty: Market rallied in the face of a Middle East on the brink, a coin-flip U.S. election, and rising interest rates.
- China: Emerging markets (dragged down by China) lagged due to disappointing stimulus news.
What We’re Watching This Week
- Earnings Week Two: Both large and regional banks, some healthcare and staples names, and two prominent international AI names report this week.
- U.S. Retail Sales: An important macro check on the consumer to add to the color we receive from bank earnings.
- China: The market will scrutinize investors’ reaction to the weekend press conference and key Q3 macro data.
Investment Management Team’s Views
- The S&P 500 shook a sell off last Monday to close the week at fresh all-time highs. There are plenty of reasons to be negative on risk assets: the Middle East is on the brink of a major war, there is substantial uncertainty surrounding the outcome of the U.S. election, some Fed speakers are walking back rate cut guidance for this year, and interest rates are surging (10-year +45 bps in the last month). Yet earnings growth, the underappreciated but crucially important driver of equity markets, rode to the rescue last week. JP Morgan and Wells Fargo started the earnings season with strong reports that alleviated some of the abovementioned fears. The AI theme is also back, as the tech sector and domestic large-cap growth led markets last week. Nvidia’s CEO spoke of “insane demand” for Blackwell, their new AI chip, while a technical breakout in the stock added weight to the move.
- China was once again a key focus for market participants last week. After a disappointing press conference on Tuesday, the market in Hong Kong experienced its sharpest daily drop since 2008. Emerging market equities were the clear laggard last week as investors recalibrated their expectations for the size of China’s stimulus package. Another press conference over the weekend was similarly vague on what the market wants to know – how much will the government pump into the economy? We will be watching the reaction from both onshore and offshore investors to the newsflow and the potential impact on trends in the rest of the global equity universe.
- Looking ahead to this week, we get U.S. retail sales, a deluge of growth, inflation, and consumption data out of China, and details on its stimulus push. Despite the macro events, the focus is shifting towards the micro as earnings season kicks into gear. The mega-banks and regional banks constitute the bulk of earnings reports this week.
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