Last Week on Wall Street – October 26th, 2024

S&P 500: -0.96% DOW: -2.68% NASDAQ: +0.16% 10-YR Yield: 4.24%

What Happened?

Last week saw a clear market divergence as the Nasdaq hit an all-time high, powered by gains in megacap tech stocks ahead of anticipated strong earnings. In contrast, both the Dow Jones and S&P 500 declined, ending their six-week winning streaks. Treasury yields fluctuated, with the 10-year yield rising throughout the week. Notably, McDonald’s shares dropped 7.6% due to concerns over an E. coli outbreak tied to its Quarter Pounders, while Spirit Airlines surged nearly 95% following job cuts and a plane sale, marking its best weekly performance on record. Consumer confidence and new home sales came in better than expected, adding positive economic data into the mix.

Consumer Discretionary was the only sector in the green, rising +0.68% largely due to better-than-expected earnings from Tesla. On the other hand, Materials (-3.8%), Health Care (-3.0%), and Industrials (-2.8%) were the worst-performing sectors. Additionally, gold cooled off from its all-time highs as the U.S. dollar strengthened. Mixed results from the ongoing earnings season reflected varied performance, with companies like HCA Healthcare and IBM missing expectations, while others like Western Digital and Capital One outperformed. Looking ahead, market attention will shift to key tech earnings from giants like Alphabet, Amazon, and Microsoft, as well as significant economic reports such as the PCE inflation index and the October jobs report.

New Home Sales Jump to Highest since May 2023

New home sales jumped 4.1% to a seasonally adjusted annual rate of 738,000 units last month, the highest level since May 2023, the Commerce Department’s Census Bureau said on Thursday.
At September’s sales pace it would take 7.6 months to clear the supply of houses on the market, down from 7.9 months in August.

The key takeaway – Sales of new U.S. single-family homes surged to their highest level since May 2023, rising 4.1% in September to an annual rate of 738,000 units. The increase was driven by buyers reacting to a temporary dip in mortgage rates. On a year-over-year basis, sales jumped 6.3%. However, mortgage rates have since risen, dampening further rate cuts by the Federal Reserve.

Sales rose in the Northeast and South, but fell in the Midwest and remained flat in the West. The median home price stayed steady at $426,300, and the inventory of new homes edged up to 470,000 units. At the current sales pace, it would take 7.6 months to clear available homes, slightly down from 7.9 months in August.

Gold’s Record Rally Pauses Due to Stronger Dollar, Higher Yields

Gold has risen more than 31% this year
US Treasury yields at three-month high
Dollar at near three-month peak

The key takeaway – Gold prices fell over 1% after reaching a record high, as a stronger dollar and rising U.S. Treasury yields outweighed safe-haven demand ahead of the U.S. election and Middle East tensions. Spot gold dropped 1.2% to $2,714.55 per ounce, retreating from a peak of $2,758.37, while U.S. gold futures fell 1.1% to $2,729.40. Analysts noted that profit-taking also contributed to the dip, with higher yields providing an appealing alternative to gold and the stronger dollar making it less attractive to foreign buyers.

Market uncertainty surrounding the U.S. election and rising national debt has added to investor caution, fueling some demand for precious metals. Spot silver, often following gold’s trajectory, fell 3.6% to $33.58 per ounce, after hitting its highest level since 2012 at $34.87 on Tuesday. Analysts suggest that if safe-haven demand persists, gold may still reach $2,800 per ounce soon, though continued dollar strength and rising yields may keep upward movement in check.

U.S. Economy Again Leads the World, IMF Says

“The IMF projects U.S. gross domestic product to expand 2.5% in the fourth quarter from a year earlier—half a percentage point higher than a July forecast, which itself was an upgrade from a January estimate.”
“A sustained period of increased investment in software equipment and intellectual property has caused a divergence in the growth paths of the U.S. and other economies, said Joe Brusuelas, chief economist at RSM US.”

The key takeaway – The U.S. is pulling ahead of other advanced economies, with investment boosting productivity and wages. The IMF’s latest report highlights stronger growth for the U.S., projecting GDP to rise 2.5% in the fourth quarter of 2024, the fastest among the G7 nations. Global growth is expected at 3.3%, with advanced economies growing 1.9%.

The U.S. economy has benefited from high nonresidential investment, stronger consumer spending, rising real wages, and abundant energy supplies, which helped shield it from price shocks. Investment spending in the U.S. is projected to grow 4.5% this year, outpacing other advanced economies, particularly Germany, where investment is expected to decline.The U.S. has seen long-term productivity gains due to investments in software, equipment, and intellectual property. Energy independence, largely driven by fracking, has also boosted U.S. productivity and helped avoid energy price hikes faced by Europe post-Ukraine invasion.