Markets were shaped this week by renewed confidence in large financial institutions, growing expectations of further US rate cuts, and contrasting performances across global regions and commodities.
Key Insights
- Strong US banking performance supported markets despite regional bank concerns, with financials on track for 18.2% earnings growth versus 8.5% for the S&P 500 overall.
- Fed rate cuts likely: Jerome Powell emphasized downside risks to employment, reinforcing expectations of further easing this year.
- UK data mixed: GDP rose 0.1% in August but labour market softening persisted.
- Global equities diverged: US +2%, Europe +0.4%, UK –0.8%, Japan –1%, China –1.5%.
- Commodities split: Gold up 5% (ninth weekly gain), silver hit record $52.21, while US crude fell below $57 per barrel.
US Banking Sector and Earnings Outlook
In the US, concerns emerged around the credit quality of smaller regional banks after both Zions Bank and Western Alliance disclosed loan fraud losses linked to the same investment funds. The regional-bank index saw a sharp pullback, but fears of broader contagion appeared limited.
Larger financial institutions remained resilient, with five of the eight diversified banks in the S&P 500 that have so far reported third-quarter earnings beating analyst expectations.
Overall, the financial sector is projected to deliver earnings growth of 18.2%—well ahead of the 8.5% forecast for the broader S&P 500.
Federal Reserve Policy and Economic Outlook
Adding to the supportive tone, Federal Reserve Chair Jerome Powell reiterated that the central bank remains inclined toward further rate cuts this year.
Speaking midweek, Powell noted that “downside risks to employment” have shifted the balance of risks in the economy, reinforcing investor expectations that the Fed will lower rates again at its next policy meeting.
Despite inflation remaining above the 2% target, markets now view additional easing as likely before year-end.
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UK Economic Performance
In the UK, economic data signalled modest growth but continued labour market softening. GDP expanded by 0.1% in August after a 0.1% contraction in July, leaving the economy 0.3% higher over the three months to August.
The unemployment rate edged up to 4.8%, while wage growth excluding bonuses eased slightly to 4.7%. The data provided limited encouragement for policymakers at the Bank of England, who continue to balance persistent inflation against signs of a cooling economy.
Global Market Performance
Global equity performance reflected the contrasting regional narratives. US equities climbed around 2%, driven by strong banking results and rate-cut optimism.
European markets rose 0.4%, while UK equities slipped 0.8% after underwhelming domestic data. Japanese equities fell 1%, with yen strength weighing on exporters, and Chinese stocks declined 1.5% amid renewed trade tensions with the US.
Commodities Divergence
Commodities presented a striking divergence. Gold surged more than 5% for the week, marking its ninth consecutive weekly gain, while silver prices hit an all-time high of $52.21 per ounce.
Silver has now risen more than 80% this year, outpacing gold’s impressive rally, driven by inflation hedging and robust industrial demand.
In contrast, US crude oil fell for a third consecutive week, briefly dipping below $57 per barrel before rebounding slightly, marking its lowest level in more than five months.
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