Asset Management Weekly Market Commentary

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U.S. large-cap stocks traded lower over the balance of the week as portfolio de-risking amid underwhelming guidance out of some of the ‘Magnificent 7,’ along with the continued rise in U.S. Treasury yields, made investors hesitant to put capital to work prior to the election. Surprisingly, small and mid-cap (SMid) stocks fared better as economically sensitive sectors such as consumer discretionary and financial services, which carry larger weights in SMid indices, outperformed as investors rotated within and out of the ‘Mag 7.’
Earnings releases out of five of the ‘Magnificent 7’ last week were a mixed bag as those with lofty expectations were punished for what was viewed as lackluster sales guidance and/or continued elevated spending on AI-related projects, while recent laggards with low expectations saw their share price rise as results proved better than feared. The days of a ‘rising tide lifts all ships’ within the ‘Mag 7’ could be behind us, setting up a better backdrop for active managers to pick and choose relative winners and losers.
Treasury yields continued to climb on the week despite decent demand for new issues at auction as buyers remained hesitant to shift out of shorter-term instruments in advance of the election. Surprisingly, even the October nonfarm payrolls report which showed just 12k jobs were created during the month, failed to put a defensive bid under long-dated U.S. Treasuries.

The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) for October is released Tuesday and is expected to come in at 53.5 which would be a downshift from a 54.9 reading in September. A reading above 50 indicates growth in the Services sector of the U.S. economy, while a reading below 50 indicates contraction.
The Federal Open Market Committee (FOMC) kicks off its two-day meeting Wednesday and Chair Jerome Powell’s post-meeting press conference addressing the Committee’s decision will take place at 1:30 central time on Thursday after the meeting concludes. Fed funds futures currently place a 97% probability on a 25-basis point rate cut and our base case also calls for a quarter-point cut.
The University of Michigan’s Consumer Sentiment Index for November is released Friday with a reading of 70.6 expected, which would be a modest rise from 70.5 in October.