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Weekly Market Update (October 08, 2023)



HIGHLIGHTS

Equities in the US were volatile this week, despite the averted government shutdown. In terms of seasonality, it is favorable to equities as Q4 (starting from October) is usually the best-performing period for US equities historically. The labor market is strong with the nonfarm payroll coming in nearly double (170k expected vs 336k actual) on Friday.


Higher High: Treasury yields hit a new high again this week with the 10Y yield at 4.89%. With the strong job data, they create downward pressures on equities. Market participants remain focused on the “higher for longer” interest rate regime.


Incoming Data: All eyes are on the economic data release next week - which could have implications for the FOMC meeting in the coming month. Data that are highlighted are the consumer price index (CPI), producer price index (PPI), and consumer sentiment survey by the University of Michigan.


Oil Retreat: Oil prices dropped 8.5% this week due to the weak gasoline demand reported by the US Department of Energy. Markets are increasingly concerned that the higher rate is driving a recession in the coming year. The selling force is so strong that the price increase in the previous weeks driven by the supply cut is completely wiped out.

 
MARKETS

Nasdaq

13,431.34

+1.60%

S&P 500

4,308.50

+0.48%

Dow

33,407.58

-0.30%

10-Year

4.78%

+21bps

Brent

84.40

-11.45%

DXY

106.10

-0.07%

*Data as of market close. 5-day change ending on Friday.

 
VIEW FROM THE STREET

Equity

J.P. Morgan: US large and small caps were down, mainly due to the overshot of AI-driven market rallies earlier in the previous months. It left the valuations stretched and is likely to be unsustainable.


Goldman Sachs: Tech companies, especially the non-profitable ones, dropped 8% this week. Long-duration stocks like tech stocks are correlated to the long-duration bonds, which are experiencing a sell-off this weak. Mega tech firms are exceptions due to their strong near-term cash flow and are less debt-reliant.

Fixed Income

UBS: We expect a reverse in the recent increase in long-duration yields. The recent rise is mainly driven by the technical force but not the inflation expectation. The 10Y breakeven inflation rates are stable at 2.35%, aligning with the Fed’s target level. Besides, the Fed’s tightening means less buying, and issuance is also higher due to the increasing budget deficit in the US.


Blackrock: Higher compensation is expected as the risks of holding long-term bonds are higher. The long-term yield increased and we expect the term premium will jump even further because of the concerns over the large amount of treasury issuance and debt levels in the US.


Economy

Goldman Sachs: In the near term, sales growth and margin will be improved by the moderating inflation pressure and economic growth. However, it will not be long-lasting given the backdrop of higher for longer interest rates and resilient wage growth.


Barclays: Markets expect a higher for longer interest rate as the labor market is strong in the US and the activities are stabilising in Europe and China. Future rate hikes are uncertain as the job data in the US are showing a lack of traction for tightening.

 
KNOWLEDGE TRANSFER

ARM IPO

Here's all you need to know about the initial public offering of Arm Holdings.


 
DISCLOSURE

This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.



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