Better than expected economic data last week — including the strongest quarterly gross domestic product (GDP) report since 2021 — failed to stem the recent downturn in equity markets.1 Disappointing earnings results from Alphabet helped to send the S&P 500 Index and Nasdaq 100 into correction territory — down more than 10% since the July highs.2,3
In another sign of increasing risks for financial assets, the KBW Bank Index — representing the largest money center and regional banks — closed the week at the lowest level since September 2020.4 Investors fear more pain to come from increasing credit losses and “higher for longer” interest rates. Jamie Dimon’s decision to begin selling a portion of his holdings of JP Morgan for the first time clearly did not help sentiment.
This week’s Federal Reserve (Fed) rate decision is almost certain to mark a second consecutive meeting to hold interest rates steady. Fed officials continue to emphasize a desire to take a “wait-and-see” approach to additional monetary tightening. Recent changes in the slope of the yield curve suggest a Fed pivot may be closer than monetary policymakers expect. The long-running yield curve inversion is finally showing signs of reversing course — the 2-year Treasury note yield moved below the long bond yield for the first time since August 2022.
Investors will also have a lot of economic data to digest this week, with a number of important labor market indicators taking center stage. The employment cost index will be released on Tuesday, Job Openings and Labor Turnover Survey (JOLTS) on Wednesday and the October employment report on Friday.5 The pace of hiring in October is expected to slow to 190,000, with the unemployment rate holding steady at 3.8%.6
1Reuters – US economy delivers blockbuster performance in third quarter; 10/26/23
2CNBC – Stock futures rebound to start a big week with the S&P 500 mired in a correction; 10/30/23
3Nasdaq – Nasdaq Index, Dow Jones, S&P 500 News: Tech Stocks Enter Correction Zone Ahead of Amazon Earnings; 10/26/23
4Bloomberg – Bank Stocks Sink Past SVB Crisis Lows as Rates Upend Business; 10/27/23
5MarketWatch – U.S. Economic Calendar; as of 10/30/23
6The Economic Times – US job growth expected to cool as the Fed looks to pause again; 10/29/23
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