Markets Lose Momentum as Volatility Picks Up
U.S. equities swung lower last week as stronger-than-expected economic data, hawkish Fed commentary, and fading AI enthusiasm weighed on risk appetite. Despite robust NVDA earnings and upbeat AI industry guidance, investors grew uneasy about sticky inflation pressures and the risk that the Fed may delay policy easing.
The S&P 500 fell nearly -2% for the week and the tech heavy NASDAQ slid closer to -3% while markets digested a steady drumbeat of macro headwinds: a firm Empire State Manufacturing report, rising wage pressures in the delayed September jobs release, and less-dovish-than-hoped Fed meeting minutes. Uncertainty surrounding some global surveys that measure economic health in the manufacturing and services sectors added to the cautious tone. Even Thursday’s early surge driven by blowout NVDA results reversed sharply as traders reassessed the jobs report’s weaker underlying details, including a multi-year high in unemployment and stubborn wage growth.
By Friday, tentative dip-buying helped stabilize markets following a supportive Consumer Sentiment release and remarks from the Fed’s Williams acknowledging that a December rate cut remains possible.
Despite the turbulence, equity markets did hold on to a major technical support zone, suggesting that recent volatility may be a digestion phase rather than the start of a broader trend reversal.
Rates, Dollar & Commodities
Treasury yields declined modestly as investors moved into safe-haven assets (when bond prices rise, yields fall and vice versa) amid stock volatility. The 10-year yield fell by nearly 0.1% to close the week just above 4%.
The U.S. dollar rallied about 1% supported by firmer economic data, global currency weakness, and mixed Fed messaging that left a December rate cut essentially a 50/50 proposition.
Commodity flows skewed decisively risk-off as energy and industrial metals weakened. Oil slid more than -3% pressured by soft demand metrics and progress toward a potential Russia-Ukraine ceasefire, while Gold held firm, dipping just a little more than
-0.5%. Ultimately, commodity markets appeared to reflect soft global demand expectations and increased caution around the Fed’s policy path.
Takeaway
Markets are wrestling with a potent combination of factors:
- firmer-than-expected economic data,
- rising doubts about near-term Fed easing,
- fading AI momentum after months of outsized leadership, and
- renewed global growth concerns.
Last week’s declines demonstrated that investors remain sensitive to pushback on more rate cuts and even modest disappointments in economic releases amid the historically lofty equity market valuations.
Still, the broader backdrop hasn’t broken down: technical support continues to hold, safe-haven flows remain orderly, and a December rate cut is still on the table. For now, the market appears to be undergoing a normal consolidation within a long-running bull trend rather than signaling a deeper shift in economic or earnings fundamentals.
Source: stockcharts.com
This Week
It’s a holiday-shortened stretch this week, but with the government shutdown backlog, markets will be absorbing a dense wave of data in just three and a half trading days. Tuesday’s Retail Sales and Wednesday’s Core PCE (both delayed September releases- the latter being the Federal Reserve’s favorite measure of inflation) will be the key catalysts. Even though the data is dated, in-line readings would reinforce the “Goldilocks” narrative of steady growth and easing inflation, helping keep expectations for a potential December rate cut alive. We’ll also get September PPI (Producer Price Index, a measure of input prices at the producer level) along with Durable Goods, which should reflect still healthy business investment.
Together, these reports offer an important check on growth and inflation trends beneath the surface. Markets seem to want numbers that come in close to expectations to demonstrate solid activity without inflation surprises.
With volatility elevated and sentiment fragile, market technicians would agree that holding current market lows will be essential to sustaining the broader bull trend.
Broad Overview
Markets are juggling a mix of encouraging and concerning signals, though overall optimism remains. Investors continue to draw confidence from strong consumer demand, steady corporate spending on artificial intelligence, and expectations that the Federal Reserve will eventually begin lowering interest rates. Inflation has eased significantly since 2022, and the job market is cooling gradually, both suggesting the economy could achieve a “soft landing” rather than slipping into recession.
Still, several warning signs are emerging. Borrowing costs are creeping higher, the strong U.S. dollar threatens to weigh on company profits, and a narrower group of stocks continues to drive most of the market’s gains — conditions that have historically preceded short-term pullbacks. Adding to the caution, investors are starting to question the sustainability of AI “circular financing”, a practice in which big tech firms invest (or commit to investing) in AI projects with other companies and then spend heavily on those same firms’ services. While it boosts revenues on paper, this loop can mask how much real, organic demand for AI products actually exists and begs the question, “Who is really paying the bill for all this expenditure?”.
The bond market, often a reliable gauge of economic expectations, continues to signal a slow and steady cooling rather than a sharp downturn. As November unfolds (a month that historically favors equities) market strength may stay concentrated in a few large-cap names before broader participation returns. The key question now is whether investor optimism can endure as valuations stretch higher and the Fed’s tone remains cautious.
We’ll continue to watch these trends closely and keep you updated. If you have any questions about your portfolio or the markets, please contact your CIAS Investment Adviser Representative.
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