The Davy Digest - 4th November 2024

Big tech shares including Meta, Microsoft and Alphabet, fell last week, despite each beating earnings expectations, leaving the tech-heavy Nasdaq index closing 2.8% lower for the month. The dip in share price highlights growing investor concerns on Wall Street about the returns on soaring investment in artificial intelligence. Elsewhere in the US, GDP grew at an annualised rate of 2.8% during Q3, while inflation remained unchanged at 2.7% year-on-year. Nonfarm payrolls declined sharply in October with 12,000 jobs added, well below the expected 100,000. The figure was skewed by strikes in Boeing and Textron and Hurricanes Helene and Milton. Elsewhere, Eurozone inflation rose more than expected to 2% year-on-year in October, supporting the case for a 25bps rather than a 50bps rate reduction by the ECB in December. In the UK, gilt yields spiked following last week’s budget announcement, driving UK borrowing costs to their highest point of the year. Elsewhere, the Bank of Japan left its target rate unchanged at 0.25%, however, analysts are predicting a hike as early as December.

Last week's highlights

	Q3 GDP (30/10) – Grew at an 2.8% annualized during Q3. US inflation (Core PCE) (31/10) – Unchanged at 2.7% YoY. Nonfarm payrolls (01/11) – 12k jobs added in October (vs 100k expected), skewed by effects of hurricanes and strikes.
	Eurozone inflation (HICP) (31/10) – Increased to 2.0% YoY during October (vs 1.7% expected).
	UK Budget (30/10) – No major surprised with increases to spending and tax, with gilt yields moving higher following the announcement.
	Bank of Japan meeting (31/10) – Kept interest rates unchanged and left door open for future hikes. China Caixin Manufacturing PMI (01/11) – Moved back into expansionary territory at 50.3.

Looking ahead to this week, the US Presidential Election will take place on Tuesday the 5th of November. The race is still too close to call while the battle continues for swing states. The Fed meet again on Thursday with analysts expecting a quarter-point cut to rates. In the UK, the Bank of England meet on Thursday. Markets have reduced their expectations for rate cuts following the budget announcement which pushed 10-year gilt yields to their highest levels this year. Analysts expect slower rate cuts as higher budgeted levels of public spending could lead to elevated inflation. In Australia, the central bank meet on Tuesday, with no change to interest rates expected.

What's on the radar

	Q3 SLOOS (04/11) Presidential Election (05/11) Federal Reserve Meeting (07/11)
	HCOB Composite PMI (06/11)
	Bank of England Meeting (07/11)
	China Caixin Services PMI (05/11) China National People’s Congress (04/11 – 08/11)

Chart of the moment

Party like it’s 1999

Source: Bloomberg as of 01/11/2024

• The S&P 500 is currently experiencing one of its hottest starts to the year since 1999.
• Through the first three quarters, the index was outperforming each of the previous 26 years, before experiencing flatter performance in October.
• Despite a number of headwinds such as elevated rates, inflationary pressures, and geopolitical troubles, the index has returned more than 20% this year in price returns alone.
• With US growth indicators improving and a second rate cut of the year expected at this week’s Federal Reserve meeting, the outlook for US equities likely remains strong into year-end.