Market Recap 10/30/2026
This was one of those weeks where the index level number indicates pretty mundane action in the markets, but beneath the surface there were some more noticeable swings. The first surprise on Monday concerned the election in Brazil. Lula pulled off an upset, and Brazilian stocks cratered on Monday. EWZ, the U.S. based ETF that tracks the Brazilian equity market, dropped close to -20% that day alone. Then, as the week progressed, investors took various stocks to the woodshed if their earnings reports were less than stellar. Google was the poster child for the week, being clipped for -12% on Thursday. Meta and Amazon were also down this week as investors were somewhat taken aback by their AI-related spending plans.
But rather than investors rushing into the safety of hedges or cash, there is much more of a rotation theme taking place. For example, the MAG-7 index lost close to -3% this week, but the equal-weighted S&P 500 index advanced +0.6%. Also, as you can see above, gold traded poorly all week, and silver lost over -9%
Thursday was particularly interesting. Since 2000, there have been 911 trading days that saw more than 400 stocks in the S&P 500 advance. Yesterday was the first day that the S&P 500 closed negative despite so many stocks moving higher. This really speaks to the fact that the selling was concentrated in the large market-cap stocks.
The Economy is Fine, but Inflation is Sticky
The big economic reports this week concerned growth in the third quarter and inflation.
The initial estimate for 3rd quarter growth came in modestly better than expected. Growth clocked in at +3.4% despite the surge in energy costs. This was two-tenths better than expected.
If you look at the categories that go into the headline number, all but residential investment and trade added to growth. It’s notable that personal consumption expenditures, the sector many worry might be clipped by gasoline prices, was strongly in the black.
The other key report was the PCE number for September (a measure of inflation that the Fed has preferred in the past). The core reading came in at +3.1% on a year-over-year basis. You can see the 6-month and 3-month rate of changes below.
There was no real news in the PCE number other than reaffirming that inflation isn’t seamlessly moving back to the Fed’s 2% target even after stripping out energy costs.
Waiting for December
All of this brings us to the Fed meeting on Wednesday. As expected, they chose not to change their target rate and said they needed “more information” before deciding what to do “to ensure a timely return of inflation” to their goal. The decision to hold came after a 10-to-2 vote, with governor Lisa Cook and Cleveland Fed president Beth Hammack favoring a quarter-point rise.
The fact that the committee acknowledged economic activity was “expanding at a strong pace” and signaled mounting concern that the economy is in danger of overheating from the AI boom left many scratching their heads. If they really think that, then why wait? Caution, probably. And the various task forces that Chairman Warsh convened a few months ago will wrap up their work early next year.
The other change announced on Wednesday concerned their meeting frequency. There will only be seven meetings next year that specifically address monetary policy settings, as Nick Timiraos notes below.
For now, the market is pricing in high odds of a quarter-point hike at the December meeting.
But this hike isn’t a lock by any stretch of the imagination. More problems in Europe’s financial markets or a big correction in stocks could put this on hold. Time will tell.
(Other) Charts We Found Interesting
The situation in France fell off the front pages this week, but the fiscal challenges haven’t changed. This is an interesting way to look at the problem – how high would taxes need to go to close the fiscal deficit in different countries? The chart below assumes no spending cuts.
Microsoft announced they are going to offer buyouts to 60,000 employees worldwide. This would not be a small reduction in headcount if everyone were to take the offer.
This week alone, both Meta and Microsoft said they are raising outside capital to fund their AI strategy. Meta is offering shares while Microsoft will issue debt for the first time in over nine years. This is proving to be a busy year for underwriters bringing bond issues to market.
This week’s selloff in MAG-7 and AI-related stocks leads many to draw a comparison to the popping of the tech bubble in March 2000. From a valuation perspective, this market is a totally different animal. Back in the late 90s, valuations lost all connection with reality. So far this cycle things are very different.
It’s hard to overstate how much of a buyer's market it is today when it comes to residential real estate. Of course, this is at a national level – the Bay Area is marching to the beat of its own drum at the moment!!
The advent of lab-grown diamonds is fundamentally changing the diamond market.
Have a good weekend
Charles Blankley
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