Week In Review 

This week, markets navigated a mix of upbeat corporate results and shifting policy signals. The Federal Reserve cut rates by 25 basis points, but Chair Powell’s press conference cooled expectations for another move in December, sending Treasury yields higher—especially at the short end, with 2-year yields up 12 basis points. Meanwhile, Big Tech earnings—especially from Amazon and Apple—helped lift sentiment, with AI spending and cloud growth emerging as key drivers. The ongoing government shutdown and a newly announced US-China trade truce added layers of uncertainty and relief, respectively, while investors continued to parse mixed signals from consumer and labor data.

Equities saw notable strength, with the S&P 500 and NASDAQ both on track for their third consecutive weekly gain and sixth straight monthly advance. Leadership came from Large Caps and Growth stocks, while Small Caps lagged and finished in negative territory. The rally was fueled by robust earnings, particularly in Technology and Consumer Discretionary sectors, which posted gains of over 3% for the week. AI remained a central theme, as Nvidia’s upbeat guidance and record capex from mega-cap tech firms underscored ongoing investment in data centers and infrastructure. Q3 earnings season continued to impress: just over 60% of S&P 500 companies have reported, with blended earnings growth at 10.5%—well above initial expectations—and a beat rate above 80%. Technology and Financials have led so far throughout the Q3 season with earnings growth over 20%, while Materials and Utilities have also posted double-digit gains. Sales growth has been solid at 8.6%, outpacing forecasts.

Sector trends this week highlighted the dominance of Tech and Consumer Discretionary, while six of eleven S&P 500 sectors finished in the red. AI developments were front and center, with Nvidia’s backlog and partnerships, plus elevated CapEx from Microsoft, Alphabet, Meta, and Amazon, driving optimism but also sparking some bubble concerns. Outside of the Mag 7, standout earnings included names in semiconductors, software, and select industrials, while laggards were concentrated in pharma, media, and asset management. The breadth of the rally was narrow, with equal-weight indices underperforming cap-weighted benchmarks.

Bond markets reflected the Fed’s hawkish tone. Treasury yields moved higher, led by the short end, as investors recalibrated expectations for future Fed moves. Investment-grade and high-yield spreads remained stable, leaving rates as the main driver of weekly bond returns.

Economic data releases were limited due to the government shutdown, forcing investors to rely on private sources and corporate commentary. Labor market signals were mixed: job cut announcements increased, often linked to AI-driven restructuring, but weekly claims suggested underlying trends remain well-behaved. Consumer spending showed resilience, though some companies flagged caution among middle-income and younger cohorts. Regional Fed indexes offered a mixed picture—Dallas and Richmond Fed manufacturing indices improved but remained in contraction, while the Chicago PMI surprised to the upside but remains below 50, the threshold between expansion and contraction. Consumer confidence edged slightly lower, and pending home sales were flat, though mortgage rates declined for a fourth straight week, potentially setting up for improved affordability ahead.

The Fed’s rate cut came with two dissents, highlighting divisions within the committee. Chair Powell emphasized that a December cut is not guaranteed and stressed the importance of incoming data, especially given the “data vacuum” caused by the shutdown. His remarks shifted market odds for a December cut from near certainty to roughly 70%. The ECB held rates steady, and the US-China trade truce paused new rare-earth export controls and reduced a fentanyl-related tariff, offering temporary relief but leaving longer-term tensions unresolved.

Looking ahead, markets will remain focused on the durability of earnings growth, the ongoing influence of AI investment, and how policy decisions shape the outlook for rates and risk assets. Key data releases next week—including ISM manufacturing and services, ADP payrolls, and consumer sentiment—will provide further insight into labor market and spending trends. The remainder of earnings season, especially from AI-exposed sectors, along with Fed commentary and any progress on government funding, will be important drivers of market expectations as December approaches.

Key events to watch next week
FactSet estimates in parenthases unless otherwise noted.
*Denotes data scheduled to be released but potentially delayed because of the government shutdown

Monday: *US Construction Spending (m/m: 0.0%), US ISM Manufacturing PMI (49.6))
Tuesday: *US JOLTs Job Openings (7,200k)
Wednesday: US ISM Services PMI (51.3)
Thursday: *US Initial Jobless Claims (229k) – Official DoL data not available, but estimates have been derived using state-level data
Friday: *US Non-Farm Payrolls (-15k), *US Unemployment Rate (4.3%), *US Average Hourly Earnings (m/m: 0.3% | y/y: 3.6%), US University of Michigan Consumer Sentiment (54.3)

Past performance does not guarantee future results, which may vary.
Source: FactSet, MidWestOne Private Wealth.
All returns presented are total returns, which include the reinvestment of income and dividends.
For style performance, Large, Mid, and Small for US Equity refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Real Estate refers to the DJ Equity REIT Total Return Index. Commodities refer to the Bloomberg Commodity Index. US Dollar refers to the value of the United States dollar relative to a broad basket of trade-weighted foreign currencies. Developed: MSCI EAFE; Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East. Emerging: MSCI Emerging Markets; Morgan Stanley Capital International Index designed to measure the performance of the emerging stock index of China, Brazil, India, and other emerging market countries.
Diversification does not protect an investor from market risk and does not ensure profit.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Views and opinions expressed are current as of the date of this publication and may be subject to change, they should not be construed as investment advice.