Week in Review: Whiplash

The equity market had a strong start to the week, month, and fourth quarter. There was a massive rally on Monday and Tuesday as the market bought into the idea that the Fed would soften its approach sometime soon. A pullback in Treasury yields from last Friday’s closing levels helped fuel upside momentum in the beginning of the week.

The 10-yr Treasury note yield settled at 3.79% last Friday and fell to 3.62% by Tuesday’s close. The 2-yr note yield settled at 4.20% last Friday and fell to 4.08% by Tuesday’s close. At the same time, the S&P 500, Dow Jones Industrial Average, and the Nasdaq Composite logged gains of 5.7%, 5.5%, and 5.7%, respectively.

The idea that the Fed would soften its approach soon gained traction following weaker-than-expected ISM Manufacturing and Construction Spending data out of the U.S., and a 25 basis point rate hike from the Reserve Bank of Australia versus the expected 50 basis points.

The week ended with a broad sell off, however, after Treasury yields moved up considerably and the September Employment Report threw cold water on the idea that the Fed would be less aggressive sometime soon.

The 10-yr note yield rose eight on the week to 3.88%. The 2-yr note yield rose and ten on the week to 4.30%. Notably, the stock market was able to hang onto some of its gains this week despite heavy losses on Friday. The S&P 500 was up 1.5%; the Dow Jones Industrial Average was up 2.0%; the Nasdaq Composite was up 0.7%.

The September Employment Report reflected continued strength in the labor market, stoking concerns about continued aggressive rate hikes from the Fed. There was also some hawkish Fed speak this week for participants to digest. Atlanta Fed President Bostic (2024 FOMC voter) said the inflation fight is still in the early days and Minneapolis Fed President Kashkari (2023 FOMC voter) said he is not comfortable pausing until there is evidence of inflation cooling.

Geopolitical worries were also in play this week after OPEC+ announced a production cut of 2 million barrels per day starting in November. This sent oil prices surging with WTI crude oil futures rising 17.3% this week to $93.20/bbl.

The surge in oil prices contributed to the S&P 500 energy sector’s gains this week. It outpaced the other 11 sectors by a wide margin with a gain of 13.9%. On the flip side, the real estate sector had the biggest loss this week, down 4.2%.

Source: Briefing Investor