Market Review: Rocky rotation redux
Global equities fell last week, and, on October 22, the S&P 500® posted its largest one-day decline in more than two months. Following Meta Platforms, Inc.’s recapitalization plan announcement, concerns about the sustainability of artificial intelligence (AI) financing weighed on markets. Information Technology and growth stocks were hit the hardest, both domestically and abroad. Notably, the Russell 3000® Value ended the week in positive territory and delivered its best weekly outperformance over the Russell 3000® Growth [DB1] in more than two years as investors rotated away from mega-capitalization stocks.
Bonds also exhibited risk-off sentiment. The 10-year U.S. Treasury (UST) yield fell 17 basis points (bps) on October 22, its biggest one-day drop since August 2024, as investors questioned whether AI-supported economic growth could be sustained. The 10-year UST yield ended the week near 5.0%, below the early October peak of 5.3%. Meanwhile, the price of Brent crude oil rose to a five-month high of nearly $116 per barrel after attacks on infrastructure in Saudi Arabia.
Market Outlook
The Federal Open Market Committee meets this week; markets expect no change in policy at this meeting, with a high probability of a rate hike in December. The Committee’s post-meeting messaging could add to volatility, along with higher bond yields, geopolitical uncertainty and the upcoming U.S. midterm elections. We maintain our lean toward diversified equities.
Table of the Week
S&P 500 Earnings Scorecard
- With 25% of S&P 500 constituents having reported earnings, the blended earnings growth rate improved 50 bps from the prior week.
- Broad-based results across several sectors contributed to week-over-week earnings growth.
- Although early results from Magnificent 7 companies were positive, investor concerns about the capital expenditures required to support AI growth weighed heavily on share prices for most of the group.
