Week 45

Macro

Markets faced a challenging week as the U.S. government shutdown deepened, halting key data releases and complicating the policy outlook. The Supreme Court’s review of President Trump’s use of emergency powers to impose tariffs added further uncertainty. Justices appeared sceptical of the administration’s legal basis, raising the risk that a ruling against the President could unsettle trade policy. A potential refund of previously collected tariffs could offer a short-term boost to corporate margins, but it would also lower tariff revenue, widen the fiscal deficit, and increase Treasury borrowing. The episode reinforced investors’ concerns about institutional frictions and fiscal discipline at a time of already fragile policy clarity.

The shutdown itself has become an economic headwind. The Bureau of Labour Statistics has confirmed that the monthly Employment Situation report will not be released. At the same time, the shutdown continues, and the CPI and other inflation reports are also on hold, leaving investors in a data vacuum. The Federal Reserve now relies heavily on private and alternative indicators to gauge economic conditions. The data gap is already affecting confidence: the University of Michigan’s preliminary November consumer sentiment index fell sharply to 50.3, near record lows, with the report citing uncertainty over the shutdown as a key factor. This data blackout has become a direct policy constraint, limiting the Fed’s ability to assess progress on inflation or employment and reinforcing the case for patience before any further rate adjustments.

Incoming data outside government channels showed a mixed picture. October ISM manufacturing missed expectations, signalling continued weakness in factory activity, though new orders and employment components showed modest improvement. In contrast, the ISM services index beat forecasts, with new orders climbing to a one-year high, highlighting resilience in the broader economy. The ADP private payroll report returned to positive territory after two months of declines, but hiring was concentrated among large firms, while small and mid-sized businesses continued to cut staff. Challenger, Grey & Christmas reported over 150,000 announced layoffs in October, the highest for that month in more than two decades, with technology and logistics firms leading the cuts amid automation and cost-control measures.

In Washington, the political standoff shows little sign of progress. Democrats, encouraged by midweek election gains, have maintained a firm negotiating position, while President Trump has pressed Republicans to end the impasse by eliminating the Senate filibuster. A Democratic proposal to reopen the government in exchange for a one-year extension of Affordable Care Act tax credits briefly lifted hopes on Friday, but was swiftly rejected by GOP leaders. The economic fallout is spreading, from delayed data releases to strained public services and reduced benefits. The shutdown is now more than a political event; it is an active constraint on economic policy, confidence, and visibility, leaving investors to navigate an environment in which private indicators, sentiment data, and market pricing are the only reliable signals of the U.S. economy’s true direction.

Rates

The Treasury market traded calmly this week as investors reassessed the policy path after the Federal Reserve delivered a second consecutive 25 bp rate cut, bringing the target range to 3.75–4%. Chair Powell reiterated that another reduction in December is not assured, stressing the need for clearer evidence that inflation is moving sustainably toward the target. The latest delayed inflation report for September showed headline CPI rising 3% year-on-year, still above the Fed’s goal but helped by a notable moderation in shelter and rental costs. While core measures such as the trimmed mean and sticky-price indexes remain above 3%, they have softened marginally, suggesting gradual progress on disinflation.

The FOMC vote revealed deepening divisions. Kansas City Fed President Jeff Schmid dissented, citing ongoing economic momentum and warning that further easing risks undermining the credibility of the 2% inflation objective, while Governor Stephen Miran favoured a larger 50 bp move to counter labour-market softness. Private-sector data, including a surge in announced layoffs and weaker hiring signals, reinforced the view that employment conditions are cooling, adding to the case for gradual rather than aggressive cuts.

Yields ended the week slightly lower, with the 10-year around 4.08% and the 2-year near 3.56% as traders increased wagers on another quarter-point cut next month. The curve steepened modestly, reflecting expectations that the front end will lead lower while longer maturities remain supported by supply pressures and persistent deficits. Financial conditions remain loose, as global bond issuance nears six trillion dollars this year and strong corporate funding access points to ample liquidity.

With official data delayed by the government shutdown and the Fed divided over the balance between inflation risks and labour-market weakness, Treasury markets appear well supported but cautious, awaiting clearer confirmation that price pressures are truly on a sustainable path lower.

Credit

Financial conditions remain loose despite ongoing policy uncertainty. Global bond issuance has already exceeded 6 trillion dollars this year, underscoring ample liquidity and strong investor demand. November is shaping up as one of the busiest months in more than a decade, with U.S. issuers flooding the European market through record reverse-Yankee supply. Alphabet’s $25 billion dual-currency deal, split between the U.S. and Europe, was among the largest corporate financings of the year and highlights how major firms are locking in long-term funding for AI and infrastructure investments.

Markets and large research houses such as BlackRock expect the medium-term policy rate to stabilise near 3 per cent, assuming inflation moderates toward 2.5 per cent by late 2026. We saw robust inflows into bond ETFs of about $51 billion in October, while total U.S. ETF flows reached a record of nearly $170 billion. Large asset managers noted that the stock-bond correlation has turned negative again as inflation cools, improving diversification and reinforcing demand for fixed-income exposure.

Credit conditions remain resilient. Public spreads are still near multi-decade lows, though dispersion is widening across sectors and ratings. CCC-rated loans trade at spreads above 1,200 basis points, while high-quality corporates and investment-grade bonds continue to price tight. Managers emphasise credit selection and quality, with better relative value seen in agencies, municipals, and high-grade government paper than in crowded corporate markets.

With official data delayed by the federal shutdown and policy visibility limited, markets appear content to hold a steady range. Issuance remains well covered, technicals are supportive, and investors continue to favour high-quality income over incremental spread risk until clearer signals emerge on inflation and growth.

Equities

U.S. equities retreated after three consecutive weekly gains, as selling in large-cap tech and semiconductors weighed on the tape. The Dow fell 1.21%, the S&P 500 lost 1.63%, the Nasdaq declined 3.04%, and the Russell 2000 dropped 1.88%. Breadth stayed fragile, with NYSE breadth negative on Monday, even as the S&P closed higher. The equal-weight S&P held up better than the cap-weighted index as investors rotated away from crowded mega caps.

Sector performance this week showed a clear divide between the outperformers and the laggards. On the upside, energy led with a gain of 1.48%, followed by healthcare up 1.29%, real estate up 0.99%, consumer staples up 0.79%, financials up 0.78%, utilities up 0.66%, and materials up 0.40%. In contrast, technology was the weakest sector, down (-4.24%), followed by communication services (-1.74%), consumer discretionary (-1.55%), and industrials (-1.12%).

Large-cap technology led the declines. Nvidia fell 7%, Tesla 5.9%, and Meta 4.1%, while semiconductors, software, and commodity chemicals underperformed. Relative winners included banks, airlines, energy, pharmaceuticals, food, and P&C insurers.

With 91% of S&P 500 companies having now reported third-quarter results, earnings continue to surpass expectations. The blended year-on-year growth rate stands just above 13%, well ahead of the projected 7.9%. Roughly 82% of companies have delivered positive earnings surprises, topping one-, five-, and ten-year averages, although the size of those beats has been smaller than usual. At the same time, the reaction function has shifted: the market has rewarded earnings beats less generously than in previous quarters while penalising misses more sharply. This pattern reflects investor caution around stretched valuations and a more risk-off tone as the year-end approaches.

Earnings – upside movers:

  • GMED / Globus Medical +38.9% after beating expectations across all key metrics, led by strength in its spine business.
  • LITE / Lumentum +19.1% after raising guidance on strong AI-driven cloud demand.
  • DDOG / Datadog +17.5% on accelerating growth in observability and enterprise adoption.
  • EXPE / Expedia +17.4% as gross bookings and room nights exceeded forecasts, with strength across both B2B and B2C.
  • COHR / Coherent +17.1% following an earnings beat driven by rising data centre demand.
  • HSIC / Henry Schein +13.8% after a solid report and speculation that KKR could increase its stake.
  • AKAM / Akamai +11.5% on continued growth in cloud infrastructure services.
  • AMGN / Amgen +7.3% on steady performance from Repatha and Evenity, as attention turned to its upcoming GLP-1 update.

Earnings- downside movers:

  • PLTR / Palantir (-11.2%) delivered solid results and guidance, but analysts highlighted its heavy U.S. government exposure and questioned the sustainability of post-AIP demand.
  • PINS / Pinterest (-18.2%) underwhelmed with softer Q4 revenue growth and was cited for lacking near-term catalysts.
  • DASH / DoorDash (-19.7%) exceeded key operating metrics, but investor focus shifted to its large planned growth investments.
  • KMX / CarMax (-22.8%) fell after the CEO announced his departure and preliminary Q3 results disappointed.
  • SMCI / Super Micro Computer (-23.5%) missed on earnings, guided below consensus, and raised concerns about margin pressure.
  • DUOL / Duolingo (-25.7%) declined after missing on daily active users and showing slower growth, with analysts warning that its new strategy and AI-driven competition could weigh on future performance.
  • CELH / Celsius Holdings (-31.1%) beat on key metrics, yet management flagged a noisy Q4 ahead due to promotions and inventory adjustments.
  • TREX / Trex (-31.8%) missed significantly on earnings and guidance, pointing to weaker consumer demand and rising competitive pressures.
  • ELF / e.l.f. Beauty (-39.6%) tumbled after missing revenue and guidance, as analysts were disappointed by its outlook for next year’s sales growth.