This week in the financial markets, strong economic data emerged from the United States, complemented by another week of tech earnings where major tech companies exceeded analysts’ estimates. Yet, when taking a broader and longer-term perspective into account, concerns of an impending recession, coupled with heightened capital expenditure (CAPEX) pressures, weighed down on stock markets.

On Top of Our Mind This Week: US GDP shows robust growth QoQ

Source: Seasonally adjusted annual rate, U.S. Bureau of Economic Analysis via FRED, as of Oct. 26, 2023

Robust Economic Growth Amidst Rising Interest Rates

In the third quarter, the US economy exhibited significant strength, with a remarkable annualised growth rate of 4.9% compared to last quarter, the highest since 2021. This upturn was underpinned by robust spending from both the consumer and government. It is particularly noteworthy that the economy continued to be resilient despite grappling with the steepest interest rates in over 15 years.

Market reactions to the GDP data were relatively muted. US Treasury yields dipped, and the stock market pulled back.

Will this data influence the Federal Reserve’s Decision Next Week? 

The next Federal Open Market Committee (FOMC) meeting is scheduled for 1 November. The GDP figures are unlikely to significantly impact next week’s decision, as they offer a backward looking view. The Fed is widely anticipated to keep the rates unchanged, allowing policymakers additional time to evaluate the effects of their prior rate hikes and recent occurrences, such as the marked downturn in bond markets.

Investor Considerations in a Dynamic Economic Landscape

For investors, this dynamic economic landscape carries several key considerations. While the economy has demonstrated resilience, concerns linger about the sustainability of the current growth trajectory. Factors such as looming student loan repayments, geopolitical unrest, and potential government shutdowns introduce a layer of unpredictability. Monitoring the Federal Reserve’s actions and their impact on interest rates will be crucial for investment strategies as we navigate this complex economic terrain.

Market Recap This Week

US stock indices encountered headwinds, with the S&P500 and NASDAQ both seeing declines of 2.5% and 2.6%, respectively. This downturn reflects the ongoing challenges and volatility in the American stock market. Meanwhile, Chinese stock indices demonstrated resilience, posting a modest increase of just over 1%, buoyed by strong economic data that highlights China’s robust economic performance.

In the realm of cryptocurrencies, Bitcoin continued its remarkable rally, maintaining its strong momentum amidst the broader market fluctuations. In the bond market, Treasuries experienced improved yields driven by positive economic data and Federal Reserve communications. However, the short-term outlook for commodities has become increasingly uncertain due to macroeconomic headwinds, making it more challenging to assess their immediate prospects.

Source: Google Finance, Syfe Research, 27 October 2023 

What is on the Radar for This Week? 

In the upcoming week, all eyes will be on the Federal Open Market Committee (FOMC) meeting, where interest rate policy will be determined. Additionally, the release of unemployment rates will be closely watched to assess the economy’s strength, with this data serving as a critical indicator of labor market health. These events are pivotal in shaping economic and market outlooks.

Source: Reuters, abc News, Bloomberg, Google Finance