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After a challenging week for the markets, there is some relief in sight. The combination of strong U.S. growth and easing inflation in the third quarter, along with impressive results from Amazon, has provided a much-needed boost. Unlike some of its Big Tech peers, Amazon’s shares rose 5% after hours as the company reported stable cloud growth and met fourth-quarter guidance forecasts.
The S&P500 is set to record its third consecutive month of losses, marking the second monthly losing streak in seven years. The main driver behind this retreat has been the escalating long-term borrowing costs. The confirmation of U.S. GDP growth more than doubling in the third quarter to reach two-year highs of 4.9% has added to fears that the Federal Reserve will delay rate cuts for an extended period.
However, the bond markets took note of the lower-than-expected core PCE inflation readings in the GDP report, causing a 15 basis point decline in the 10-year Treasury yield. This retreat has provided some relief, with stocks bouncing back slightly. The earnings season has also been positive, with over 80% of companies beating expectations. S&P500 companies are on track for 2.6% annual profit growth in Q3 and anticipate a 12% expansion in earnings for 2024.
In terms of corporate news, Big Oil takes center stage on Friday, with Exxon Mobil and Chevron reporting their earnings. Apple, America’s most valuable company, is set to report next week. On a global scale, MSCI’s all-country index rebounded from its lowest level since March, while Chinese stocks continued to recover due to improved industrial profits and stabilizing policy measures.
Geopolitical tensions remain a concern, particularly with regards to the Middle East and the recent U.S. engagement in Syria. Crude oil prices have risen slightly, and the dollar has retreated from its weekly highs. The European Central Bank has maintained its interest rates and balance sheet runoff plans, providing some comfort to those expecting a faster unwinding of its bond holdings.
In Europe, share indexes have been relatively muted, with France’s blue-chip index lagging behind due to a downbeat forecast from drugmaker Sanofi. NatWest in Britain also experienced a significant drop in shares following a profit outlook downgrade and news that the Financial Conduct Authority is investigating the bank’s handling of the former Brexit party leader’s accounts.
Later in the day, key developments such as U.S. personal income and consumption data, PCE inflation gauge, and corporate earnings reports will provide further direction for the markets. European Central Bank President Christine Lagarde will also attend the European Union Summit in Brussels.
Overall, while there are some positive signs in the market, caution remains due to ongoing geopolitical tensions and uncertainties. The markets will continue to monitor developments closely and react accordingly.