Markets (S&P 500) ended the week higher after setting a new record high earlier in the week. Interest rate rose over the course of the week, with the 10-Year Treasury yield reaching a three-week high following comments by Federal Reserve Chair Jay Powell casting doubt on the likelihood of another Fed rate cut in December.
As expected, the Fed cut rates by 0.25% at its October meeting. Ten members supported the cut. Two members voted against it, one favoring a 0.50% cut, the other preferring no cut. Speaking at his post-meeting press conference, Chair Powell said the decision to cut rates was based on the downside risks to employment, which have increased in recent months. Regarding the possibility of an additional rate cut in December, Powell said it was far from a forgone conclusion. The forcefulness of his comment seemed to catch markets off guard, driving yields across the Treasury curve higher, and market expectations for a December cut lower by nearly 30%, from 92% to 63%.
President Trump and Chinese President Xi met in South Korea after which it was announced the US will reduce tariffs on China from 57% to 47% and forgo an additional 100% increase set for Nov. 1, while China will reduce export controls on rare earth minerals and resume purchases of US soybeans.
The government shutdown reached the one-month mark, becoming the second longest shutdown on record. Should the shutdown stretch beyond Tuesday, November 4, it will become the longest shutdown on record. Thus far, the two sides have shown little willingness to budge from their positions, making it unlikely that a resolution to the impasse is imminent.
Through Friday, 64% of S&P 500 companies had reported third quarter earnings, of which 83% have beaten their consensus estimate. According to industry group FactSet, consolidated S&P 500 earnings growth for the quarter is expected to 10.7%, better than the 7.9% estimate on September 30.
