Weekend Update, October 30th, 2023
Even though interest rates rallied last week, concerns about escalating conflict in the Middle East led to another week of downside in most equity markets. The S&P 500 fell -2.5% on the week and is now down -14.2% from its December 2021 record highs. The 10-year interest rate fell -8 bps to 4.84% last week but is one percentage point higher (+100 BPS) than at the start of the year.
The S&P 500 ended the week at 4,117, down from last Friday’s closing level of 4,224. With this drop of more than -10% from the S&P 500’s July 31 closing high of 4,589, it establishes the start of what market watchers call a “correction”. With only two trading days remaining in the month, the index is now down close to -4% in October. The index is still solidly in positive territory for 2023, though the year-to-date increase has dropped to up +7.2% for the year.
The normally early to the interest rate party, Bank of Canada, left policy rates unchanged last week as widely expected last week. The Bank of Canada noted that “inflation risks have increased”, and that it “is prepared to raise the policy rate further if needed.” But given their policy moves in the last 18 months, the Bank is probably done raising rates.
Oil prices fell –3.62% to $85.54/bbl during the week as crude continued its downward trend since peaking at over $93/bbl in late Sept. Oil price volatility has been elevated over the past month amid heightened geopolitical concerns and a strengthening U.S. dollar. Fears of softening global demand amid weaker euro zone data largely offset the tight supply picture as the U.S. crude oil inventory deficit fell below the five-year average.
Communication services had the largest percentage drop last week, falling -6.3%, followed by a -6.2% decline in energy, a -3.9% drop in health care, a -2.4% decline in financials and a -2.3% drop in industrials. Utilities were the lone gainer, up +1.2%. The drop in communication services was led by shares of Alphabet (GOOG), which tumbled -9.8% on the week as the Google parent reported an annual growth slowdown in its cloud business for the third quarter. Alphabet’s overall Q3 results topped expectations, but investors were concerned by the slowdown in the cloud business. Also weighing on communication services, shares of Meta Platforms (META) fell -3.9% despite the Facebook parent reporting higher-than-expected Q3 earnings and revenue, as the company also warned of weaker advertising demand in the current quarter.
The energy sector’s drop came as crude oil futures also fell on a weekly basis. The declines included shares of Chevron (CVX), which shed -13% on the week as the oil company reported Q3 adjusted earnings per share below analysts’ expectations despite higher-than-expected revenue. On the upside, the gains in utilities included NextEra Energy (NEE), whose shares rose +8.2% as the company reported Q3 adjusted earnings per share above analysts’ mean estimate despite revenue coming in slightly below the Street view.
This week’s earnings calendar feature McDonald’s Corp. (MCD), Pfizer Inc. (PFE), Advanced Micro Devices Inc. (AMD), Caterpillar Inc. (CAT), Apple Inc. (AAPL), Eli Lilly & Co. (LLY), and Berkshire Hathaway (BRK.A, BRK.B).
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