Week In Review 

Markets were on track for a positive week through Thursday, buoyed by optimism around AI developments and the upcoming earnings season. But sentiment shifted sharply Friday after President Trump posted a lengthy message on Truth Social accusing China of hostile trade practices and threatening a “massive increase” in tariffs. The remarks, coupled with recent Chinese regulatory actions targeting US tech firms, reignited trade tensions and sent equities lower. Meanwhile, the government shutdown entered its tenth day with no signs of resolution, delaying key economic data and adding uncertainty to the Fed’s policy outlook.

Major US equity indices finished the week in the red, with the S&P 500, NASDAQ, and Russell 2000 all posting declines. The NASDAQ outperformed on a relative basis for the week, supported by strength in tech and AI-related names. Growth outpaced Value across market caps, driven by investor enthusiasm for AI, highlighted by AMD’s nearly 30% rally after announcing a multiyear deal with OpenAI to deploy 6GW of GPUs. The deal, which could generate over $100 billion in revenue, reinforced bullish sentiment in the space. However, Oracle’s weak margins on Nvidia chip rentals—reported at less than 14%—raised fresh concerns about AI profitability and sustainability. Only Consumer Staples and Utilities finished higher for the week, reflecting a defensive tilt amid rising macro risks. Tech held up relatively well, with AMD and OpenAI developments offsetting broader weakness. Corporate earnings kick off next week with major banks, where investors will focus on capital markets activity, net interest income guidance, and signs of consumer or corporate credit stress.

In fixed income, Treasury yields fell across the curve, with the most pronounced moves on Friday. The 2-year and 10-year yields dropped as investors reacted to renewed trade tensions and political uncertainty. The risk-off tone was amplified by concerns around First Brands, whose distressed bonds contributed to modest spread widening in credit markets. The company’s complex financing structure and looming bankruptcy have sparked scrutiny, though BlackRock, in a Bloomberg appearance, indicated they do not see broader spillover risk at this stage. The episode has nonetheless added to market sensitivity around credit quality and sector-specific vulnerabilities.

Economic data was sparse this week due to the shutdown, which delayed key releases from the Bureau of Labor Statistics. In place of official data, private estimates suggested a softening labor market. Carlyle projected just 17,000 jobs added in September, while state-level extrapolations pointed to a modest rise in jobless claims. These alternative indicators, though limited in scope, continue to suggest hiring momentum is slowing. The October Michigan Consumer Sentiment index came in slightly above expectations, with inflation expectations ticking down modestly. However, the NY Fed’s consumer survey showed year-ahead inflation expectations rising to 3.4%, with spending growth expectations slipping. A Bloomberg report on Friday indicated that the September CPI release—originally scheduled for October 15—is now expected to be published on Friday, October 24. This delay could complicate the Fed’s decision-making ahead of the October 28–29 FOMC meeting.

Policy developments remained dominated by the government shutdown, which is now likely to last at least until October 14. Congressional negotiations have stalled, with no clear path forward. Real-world impacts are beginning to surface, including delayed flights due to staffing shortages and uncertainty around federal worker pay. If the shutdown continues, it could further delay economic data and impair the Fed’s ability to assess conditions ahead of its next meeting. On the international front, political instability in France and leadership changes in Japan added to global macro uncertainty, influencing currency and bond markets.

In summary, markets ended the week on a cautious note, with trade tensions, political dysfunction, and sector-specific volatility weighing on sentiment. Defensive positioning and falling yields reflected investor unease, while optimism around AI and earnings season provided some offset. The coming week will be closely watched for earnings from major banks, Fed commentary, and any progress on the shutdown.

Key events to watch next week
FactSet estimates in parenthases unless otherwise noted.

Monday: US Columbus Day Holiday – bond market closed.
Tuesday: US NFIB Small Business Optimism (prev 100.8), Bank earnings (Citigroup, Goldman Sachs, JPMorgan, Wells Fargo), Senate returns from recess
Wednesday: US Fed Beige Book, Bank earnings (Bank of America, Morgan Stanley, Synchrony Financial)
Thursday: US Fed Governors Barr, Waller, Miran speak, US Continuing Jobless Claims, US Initial Jobless Claims, US PPI (pending shutdown resolution)
Friday: US Building Permits (1,347k), US Housing Starts (1,315k), US Capacity Utilization (77.3%), US Industrial Production (m/m: 0.05%)

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.