Michael Reinking, Senior Market Strategist at the NYSE, reviews a volatile week as the S&P 500 held near its 100-day average around 7,600 amid AI capex worries. Brent crude rose over 4% to new highs on tanker attacks and a US order for non-emergency personnel to leave Saudi Arabia. Tech reversed its early-week bounce as another data center IPO flopped, while industrials and transports showed resilient demand. Treasuries caught a flight-to-safety bid, with yields down over 10bps and the 10-year back below 5% for the first time in a month. Looking ahead, Fed, ECB, and BOJ rate decisions, Q3 GDP, PCE, and earnings from over 40% of the S&P 500 mark a big week.
Hello, I'm Michael Ryan King, Senior Market Strategist at the New York Stock Exchange. And this is Market Storylines.
Every week, we're here to keep you up to date on the key trends and events driving global markets.
Now, Axios has reported that banks are under siege from AI agents, but we're still here recording on Thursday, October 22nd. So let's dive in.
Now, last week, Eric took you through the start of earning season, growing concerns around the AI landscape, and how that has started to change the narrative in rates markets despite the hot inflation data.
He also noted that last Wednesday, the S&P 500 broke a streak of 53 trading days without a 1% decline.
Well, it didn't take long to put a second on the board with the index closing down a little over 1% again on Friday as oil prices retested the recent highs and the VIX jumped to around 20 on options expiration.
Now, this brought the drawdown for the week to around 2%. You know, tech did most of the damage during the during the week with chip and memory stocks down north of 10% while neo clouds were off over 20% pretty much across the board, all retesting their late July situational awareness lows.
However, rotational activity helped to offset some of that weakness at the index level with seven of 11 sectors in the S&P 500 ending the week higher, though it was mostly in defensive sectors with energy, staples, and healthcare all up over 3%.
Now, this week with a light economic calendar and the Federal Reserve in its blackout window, we were hoping the focus would shift away from the macro.
And the main highlights this week were earnings and the start of the New York Knicks title defense. Now, on Tuesday evening, the uh, world champions raised their banner in MSG to much fanfare.
Unfortunately, the new look 76ers spoiled the evening, much like the geopolitical headlines have spoiled our hopes to shift the the focus away from the macro environment.
Now, today, Ice Brent is up over 4% breaking above the recent highs as more tankers have been attacked in the straight, Russia and Ukraine continue to exchange fire, and the US State Department has ordered non-emergency personnel to leave Saudi Arabia and other areas in the Middle East. All of which is adding to speculation that the US and Israel will unleash another round of air strikes soon.
Now, from an equity market perspective, major indices moved higher early in the week as tech bounced, helped by some positive analyst commentary. However, there wasn't a lot of conviction in the trading or arguably the research, as most of the ratings increases were accompanied by significant price target cuts.
Now, the early cycle tech earnings continue to showcase the strong AI related demand. However, the group has turned sharply lower again as the numbers continue to highlight the large sums of money necessary to fund this investment cycle, adding to the growing concerns about capital constraints, while another data center related IPO flopped overseas.
uh stocks leveraged to the AI CAPEX cycle are down over 5%, reversing all of this week's gains and then some.
Now the flow of earnings has started to pick up and the street is now drinking through a fire hose of reports on a daily basis.
Now, as has been the case in recent quarters, there's a lot of volatility around those reports, and the reaction function is not always congruent with the results.
Now, earnings outside of tech and financials with the latter of which Eric discussed last week, uh have been pretty solid.
Industrials have pointed to strong demand and growing backlogs. Results from companies in the transportation sector, which are most impacted by the increase in fuel costs, have highlighted that there continues to be very strong demand.
And these companies have been pulling levers to control costs and have begun to increase prices, which could start to pressure margins downstream and impact inflation going forward.
Now, consumer facing companies continue to point to a bifurcated yet resilient consumer. And companies exposed in industries that are are in industries that are directly impacted by the higher interest rate environment like autos and housing, continue to point to a difficult macro backdrop.
However, those stocks are getting some relief in today's session as treasuries are catching a flight to safety bid and as expectations for further Fed tightening moderate.
Yields are down over 10% across the curve in today's session with the 10 year breaking back below 5% for the first time in a month.
Now, the tech weakness today is threatening a third over 1% decline in the S&P 500 in the last trade seven trading sessions, though the index is hovering around unchanged for the week.
Now once again, the equal weight is out performing up around 1 and a half% with staples, healthcare, financials and consumer discretionary discretionary solidly in the green.
There is also some relief in small and midcaps as yields pull back.
Now, correlations aren't picking up yet, but the VIX is back in the high teens again, and the S&P 500 is holding just above last week's lows and its 100-day moving average around 4600. If we start to break below those levels, things could start to get a bit more dynamic.
Now we close out this week with the S&P Global Flash PMIs, and next week is setting up to be pretty important. As we prepare for Halloween and the mid-term elections, we start the week with the 33rd sports Equinox in history when the NFL, MLB, NBA, and NHL all have games on the same day.
By the way, a delayed congratulations to the all the Rays and Brewers fans out there.
Now, the week includes rate decisions from the Federal Reserve, the ECB, and the BOJ, some key economic data including our first look at Q3 GDP, uh the PCE report, and then outside of the focus on the Middle East, the other focus will be on earnings with over 40% of companies in the S&P 500 scheduled to to release results.
And that's going to do it for this week. Remember you can watch market storylines on tv.nyse.com or on the NYSE YouTube channel.
Thanks for joining me. I'm Michael Ryan King. We'll see you next week.
