Markets Last Week - 22/11/2024

Indexes Near Record Highs Amid Broad-Based Gains

Major stock indexes ended the week on a high note, recouping some losses from the previous week despite lingering uncertainty surrounding the incoming Trump administration’s policies and heightened geopolitical tensions related to the Russia-Ukraine conflict. Gains were widespread, with smaller-cap indexes outperforming their larger-cap counterparts. The equal-weighted version of the S&P 500 Index also outpaced the more common capitalization-weighted measure. Meanwhile, Bitcoin extended its postelection surge, marking its third consecutive week with gains exceeding 10%.

With a relatively light economic calendar, much of the attention centered on NVIDIA's third-quarter earnings release on Wednesday. Despite meeting general investor expectations, the chipmaker's fourth-quarter guidance came in slightly below some analysts' forecasts, leaving shares largely unchanged for the week. Optimism around artificial intelligence-driven clean energy demand, sparked by NVIDIA’s commentary, boosted the utilities sector. In contrast, communication services lagged due to a decline in Alphabet’s stock following reports of a Justice Department proposal to break up the company.

Strong Labor Market and Housing Reports Bolster Sentiment

On Thursday, the Department of Labor reported an unexpected drop in initial jobless claims for the week ending November 16, 2024, which helped lift investor sentiment. New claims fell by 6,000 to 213,000—the lowest level since April 2024—despite continuing claims reaching a three-year high of 1.91 million, partially attributed to the aftermath of Boeing’s machinist strike, which has since concluded.

Encouraging housing data also contributed to market optimism. The National Association of Realtors reported that existing home sales in October posted their first year-over-year increase since July 2021. Factors such as continued job growth, economic expansion, and stabilizing mortgage rates were cited as drivers of increased housing demand.

Attention now shifts to the Federal Reserve’s upcoming December meeting as investors seek clarity on the pace of interest rate cuts. Speaking on Wednesday, Fed Governor Lisa Cook noted the ongoing "disinflationary process" and supported a downward trajectory for short-term rates, while emphasising that the timing and scale of rate adjustments will depend on inflation and labor market data.

U.S. Treasuries Rise Amid Divergent Yield Curve Movement

U.S. Treasuries delivered positive returns through Friday amid mixed yield curve trends. Short-term yields rose, while long-term yields fell.  Municipal bond yields also edged lower across most of the curve, supported by strong demand in the primary market, with some new issues being oversubscribed by up to 20 times. Elevated issuance volumes were attributed to deals being advanced ahead of the upcoming holiday-shortened week.

Investment-grade corporate bonds saw spreads tighten during the week, as issuance volumes exceeded expectations and most offerings were oversubscribed. In the high-yield market, trading activity picked up after a slow start, supported by stability in macroeconomic conditions, a rally in tech stocks, and tightening interest rates. However, the week also brought some issuer-specific news, with Spirit Airlines officially filing for bankruptcy.

Index	Friday's Close	Week's Change	% Change YTD
DJIA	44,296.51	851.52	17.53%
S&P 500	5,969.34	98.72	25.15%
Nasdaq Composite	19,003.65	323.53	26.60%
S&P MidCap 400	3,341.78	134.26	20.14%
Russell 2000	2,406.67	102.84	18.73%

Inflation Surges, BoE Divided on Rate Policy

UK inflation rose more than anticipated in October, driven primarily by higher household energy costs. Consumer prices increased by 2.3% year-over-year, up from 1.7% in September, exceeding economists’ forecast of 2.2% and marking the highest rate since April. The core inflation measure, which excludes volatile food and energy prices, climbed to 3.3%, while inflation in the services sector edged up to 5%, aligning with the Bank of England’s (BoE) projections.

The stronger-than-expected inflation figures reinforced expectations that the BoE will likely maintain its current policy through the end of the year. Markets also adjusted their outlook, reducing the anticipated rate cuts in 2025 from three to two.

Meanwhile, BoE policymakers expressed differing views on the persistence of inflation and future interest rate paths during a parliamentary committee meeting held before the inflation data release. Governor Andrew Bailey highlighted the uncertainty, noting “risks on both sides” of the inflation outlook.

Markets Mixed Amid Hopes for ECB Rate Cuts

The pan-European STOXX Europe 600 Index gained 1.06% in local currency terms, buoyed by speculation that the European Central Bank (ECB) might lower borrowing costs in December following weak economic data. Performance across major stock indexes was mixed. Italy's FTSE MIB dropped 2.04%, while France's CAC 40 edged down 0.20%. Germany’s DAX rose 0.58%, and the UK’s FTSE 100 advanced 2.46%.

Eurozone Business Activity Contracts as Wages Climb

Business activity in the eurozone contracted in November, highlighting ongoing economic challenges, according to purchasing managers’ surveys by S&P Global. The HCOB Flash Eurozone Composite PMI Output Index fell to 48.1 in November, down from 50 in October and marking a 10-month low. This decline reflected worsening conditions in the manufacturing sector and a slowdown in services after two months of marginal growth. (PMI readings below 50 indicate contraction.)

The bloc’s largest economies, France and Germany, also saw their PMIs slip into contraction territory. Meanwhile, UK business activity shifted into contraction after 12 consecutive months of growth.