Global equity markets traded with a blend of optimism and caution over the past week as investors digested central bank policy, corporate earnings signals and shifting sentiment around the US economic outlook.
Although major indices began the week near or at all-time highs, late-week volatility in technology names tempered broader gains, underscoring a market grappling with valuation questions even amidst easing monetary conditions.
Key Insights
- Fed cuts, but signals patience: A third 25bps rate cut supported risk sentiment, though the Fed emphasised proximity to neutral and avoided committing to further easing.
- Rotation within US equities: Small caps and cyclicals outperformed early, while mega-cap technology lagged amid renewed valuation concerns.
- Europe extends gains: Banks and cyclicals drove a third straight weekly advance as easing financial conditions improved sentiment.
- Mixed bond signals: Front-end yields declined after the Fed, while long-end yields stayed elevated on fiscal and policy uncertainty.
- Focus shifts to data: Upcoming US labour releases and central bank guidance will shape expectations into year-end.
Federal Reserve Policy Update
The Federal Reserve delivered its third consecutive interest rate cut, lowering the federal funds target range by 25 basis points to 3.50%–3.75%, in line with market expectations and reflecting heightened downside risks to the labour market.
Investor reaction was constructive early in the week, with many interpreting the policy statement and Chair Jerome Powell’s press conference as less hawkish than feared.
Powell emphasised that the current rate sits “within a broad range of estimates of its neutral value” and noted that policymakers are “well positioned to wait and see how the economy evolves”—a message that reinforced hopes for a soft landing.
However, the Fed’s language also pointed to caution, referencing labour market risk rather than signalling a clear path of future cuts.
US Equity Market Performance
Equity performance during the week reflected this nuanced backdrop. US major stock indexes began the week higher, with small-caps outperforming as investors rotated towards more rate-sensitive areas of the market. The Russell 2000 led with a gain of around 1.2%, and the Dow Jones Industrial Average climbed over 1% on the week.
By contrast, the tech-heavy Nasdaq struggled later in the session, retreating as concerns around valuations and the sustainability of elevated AI-driven capex came back into focus after mixed earnings from software and semiconductor sectors. This pullback in growth names trimmed overall gains for the S&P 500 through Friday trading.
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European Equity Markets
European equities posted a third consecutive weekly gain as optimism around Fed easing bolstered risk sentiment.
Banking stocks led the advance following fresh confidence on lending conditions and regulatory reform signals across the region.
Cyclicals including basic resources and travel/leisure also contributed to performance as investors sought exposure beyond traditional defensive sectors.
Fixed-Income Markets
Fixed-income markets exhibited a mixed picture. Shorter-term Treasury yields declined post-Fed, while longer maturities expanded, led by expectations of range-bound policy and ongoing fiscal considerations.
Looking Ahead
Looking ahead, markets turn their attention to forthcoming macro releases—including delayed US labour data—and central bank guidance on timing and scale of future policy moves.
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