After a week away from Friday Five, let’s catch up on market happenings. Truly, there is never a dull moment!

September CPI report – This hotter than anticipated report set off a tough few days for stocks. CPI rose 3.7% year over year (above the rise in August of 3.4%) and Core CPI was also up in the month (2.6% annual vs. 2.4% annual in August). Short-term yields rose on this news as expectations of a fed rate hike rose. Shelter was the main driver of the increase. Many believe higher interest rates create a “doom loop” – higher rates lead to less housing supply which leads to higher rents – which then spikes inflation and encourages more rate hikes..

September PPI report – This report on wholesale prices was another worrying sign for inflationary pressures. It rose 6.3% year over year, the higher annual change since 2022. Energy prices were the main culprit but there may likely be spillover into other areas.

AI spending concerns – renewed panic last week about the level of AI spending. Concerns over debt levels and financing hit the tape last week as some issuers (like CoreWeave) put out a new debt issuance with 15%+ yields. AI trade stocks sold off late last week. This downward spiral reversed earlier this week but has picked up steam again today. It has been a tough month for AI names and the NASDAQ. Ongoing debate about the sustainability of debt financing and the impact the lack thereof will have on growth continue to confuse markets and investors alike

Market rotation – As technology took a breather last week (primarily on AI concerns), investors rotated out of tech stocks into other parts of the market. This drove the equal weight S&P 500 to all time highs as the market cap S&P 500 retreated modestly from its all time highs

Earnings thus far – Market expectations are 24% earnings growth year over year. Next two weeks are the heaviest in terms of companies report. Reports thus far have been decent however market’s expectations going into these reports are leading to some volatile price reactions in individual names.

Volatility – Equity markets have been in the headlines for large price swings during October. The VIX (a measure of this volatility) spiked last week to above 19 – however, it has since come back down to 16.7 (was 16.34 on 9/30)

Interest rates retreat – interest rates (and oil prices) have retreated in October after a wild ride. Rates spiked post CPI report but have since fallen. The 10-year rate was 5.29% on September 30th, 5.3% after the CPI report and it now hover just above 5% (5.01% as of this post)

France – There continues to be considerable social unrest in France, coupled with large scale riots (estimates of over 550,000 people protesting/looting). Debt has reached 119% of GDP and interest rates continue to rise in the country (hitting 5.08% today)

Midterms – Let us not forget an election cycle is upon us. Markets are currently projecting democrats to take both senate and house

All in all, equity markets remain in decent shape (sitting ~2% from all time highs) and fixed income markets are showing signs of life as oil prices fall and US rates retreat along side them. Earnings season will give us another real-time look at the level of AI spending, the expectations for its path from here, and the earnings potential of US businesses. As always, there is plenty to keep track of – so stay tuned!

Onward we go,