Weekend Update #253
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With mega cap tech companies reporting earnings this week, equities gained to new all-time highs on Tuesday and finished the week higher. AI-related revenue growth continues to be a key driver of higher earnings expectations in tech. Nvidia’s GTC conference in Washington, D.C. highlighted new partnerships to support AI adoption across industries, while Microsoft signed a new agreement with OpenAI to acquire a 27% ownership in the company. Wednesday’s FOMC meeting for October marked a turning point in market sentiment. Fed Chair Jerome Powell stated, “A further reduction in the policy rate at the December Meeting is not a foregone conclusion.” The hawkish commentary caused a slight pullback in interest rate cut expectations for 2026, but the Fed will continue to be data-dependent when weighing inflation risks against labor market risks.
Friday marked 31 days into the government shutdown, pushing closer to the 35-day shutdown record set in December 2018. Along with the shutdown, most government economic data continues to be delayed. This week, investors looked to the October Consumer Confidence report for insights. While many Americans’ sentiment is not being impacted by the shutdown, confidence still slipped for the 3rd straight month, driven by lower expectations for business conditions, employment, and personal incomes. The index was a slight positive surprise on economists’ estimates as consumers’ views on present business conditions and labor markets improved from September. The Federal Reserve looked to non-government data to inform decisions at this month’s meeting, which resulted in a 25 basis point cut to the federal funds rate. Committee members perceived both upside risks to inflation and downside risks to employment growing since the last meeting, which caused a greater split in views over the appropriate path of monetary policy. The FOMC decided to end its cycle of quantitative tightening that began in June 2022, as the central bank focuses on providing adequate liquidity of reserves to the banking system.
In stock-specific news, Amazon announced it would be laying off up to 30,000 workers, which shed light on how companies are finding AI-led efficiencies to replace certain types of roles. The company went on to beat earnings expectations on Friday with substantial growth seen in its Amazon Web Services business, providing investors with evidence of AI-driven earnings power. Meta shares fell despite AI-led revenue growth as investors questioned the future ROI of accelerating data center investment, signaling investor desire to see a near-term roadmap for AI revenue. Fiserv slashed its full-year outlook on Wednesday, which sent shares down 47% and had analysts struggling to find confidence in the management’s explanation for the weak results.
Another key event was a report that the U.S. and China had settled negotiations on a number of points — tariffs, TikTok, rare earth metals, semiconductors, jet engines, and soybeans. Investors will look to the finalized details of the agreement and follow-through on both sides, but the announcement helped improve geopolitical sentiment.
Friday’s Close
(Weekly Performance)
S&P 500 6,840.20 (+0.71%)
Nasdaq 23,724.96 (+2.24%)
Dow Jones 47,562.87 (+0.75%)
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