Stocks rallied on trade optimism late in the week, erasing the S&P 500 Index’s 2% loss through Tuesday. U.S. markets’ slide began Monday and intensified on Tuesday as the S&P 500 fell 1.5% following renewed reports that the Trump administration was planning to restrict U.S. investors’ capital flows into China. However, the trade narrative flipped midweek, as investors became increasingly optimistic that both sides may be willing to accept a partial trade deal that would avoid more tariffs in October and December.
Economic data released this week sent mixed signals about the state of domestic inflation. The core Producer Price Index (PPI), which excludes food and energy prices, rose 2% year over year in September, its slowest growth in two years. Consumer inflation, however, stayed at a cycle high in September, as the core Consumer Price Index (CPI) rose 2.4% year over year.
Global stocks were relatively quiet during the week. The MSCI Emerging Market Index was little changed through Thursday, while the MSCI EAFE Index of developed-market stocks rose modestly during the same period.
Growth stocks led value stocks, as value was weighed down by defensive sectors such as utilities and real estate. Strong outperformance on Friday pushed small caps roughly in line with large caps for the week.
Fixed income markets dropped across the board as global interest rates moved sharply higher. The spike in the 10-year U.S. Treasury yield steepened the yield curve to its highest level in over two months, while the risk-on attitude in markets led credit sensitive sectors such as high yield to modest gains.
Oil prices rose, breaking a two-week losing streak, while the U.S. dollar declined for a second week. The price of gold slid on the week as the yellow metal continued to trend sideways. Copper prices rose on the week, a positive sign amid weak global manufacturing data.
Next week, the economic calendar in the United States includes the release of retail sales and the Federal Reserve’s Beige Book on Wednesday, followed by industrial production and the Conference Board’s Leading Economic Index later in the week. Internationally we’ll get industrial production and CPI numbers out of the Eurozone, while China will report a swath of data including third quarter gross domestic product, inflation (both PPI and CPI), and industrial production.
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