John Hancock: Weekly Market Recap Week Ended October 23

Sub 5.00% yield

The recent bond market sell-off continued to ease as the yield of the 10-year U.S. Treasury slipped below 5.00% on Thursday for the first time in about a month before inching higher and closing right at that threshold on Friday. As recently as October 5, the yield peaked around 5.34%, the highest in more than two decades.

Fed rate outlook

Bond market trading supported expectations that the U.S. Federal Reserve is likely to hold steady on interest rates at the policy meeting scheduled to end on Wednesday. As of Friday afternoon, prices in rate futures markets implied a 90% probability that the Fed would keep its benchmark rate unchanged on October 28, according to CME FedWatch. However, the probability of a quarter-point rate hike at the Fed’s early December meeting was projected at more than 70%, with a 7% prospect of a steeper half-point increase.

Top-heavy earnings

About a quarter of the way through earnings season, a handful of U.S. mega-cap technology stocks were expected to continue generating a disproportionate share of overall earnings growth, but to a lesser extent than in recent quarters. Analysts forecast that the group of stocks known as the Magnificent Seven would post average third-quarter growth of 33.2%, according to FactSet. In contrast, the other 493 companies in the S&P 500 were projected to produce 27.7% growth.

Busy week ahead

In addition to more quarterly earnings reports and Wednesday’s conclusion of a U.S. Federal Reserve policy meeting, investors will assess an initial government estimate of third-quarter GDP growth on Thursday. Also on Thursday, investors will get an updated reading on monthly inflation, as measured by the Personal Consumption Expenditures Price Index.

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