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Strong Global Growth Meets a Higher-for-Longer Fed
Stocks rallied last week, with the S&P 500 up 1.23% to 7,743 and the Nasdaq Composite jumping 2.07% to 27,069, both continuing to build on the year’s gains. The S&P 500 is now up 14.09% year-to-date and the Nasdaq 16.98%, while the Dow added a more modest 0.28% and small caps lagged, with the Russell 2000 down 0.79% for the week.
Global Growth Gains Momentum
The catalyst was a strong set of flash PMI readings across major economies. The U.S. composite PMI rose to 58.4, its highest level since July 2021, while the eurozone climbed to 53.1, its strongest reading since April 2023, and Japan remained firmly in expansion even as its pace cooled slightly. Taken together, the data point to accelerating global growth, arriving even as energy prices, geopolitical uncertainty, and tighter financial conditions persist.
Treasury Yields Climb Higher
That combination of resilient growth and still-elevated inflation gave central banks less urgency to ease. Treasury yields moved higher on the data, with the 10-year yield climbing to 5.17% and the 30-year to 5.49%, both up meaningfully from the prior week.
Fed Hikes, Signals Pause
This comes on the heels of the Fed’s first rate hike in three years, announced the prior week, lift-ing the target range to 3.75%-4.00%. As we discussed with clients last week, this move was widely anticipated and largely reflects cost-push inflation tied to elevated oil prices rather than an overheating economy. Fed officials’ own projections now suggest one additional hike later this year before a pause through 2027, with only a slow decline in rates from there.
Technology Leads Markets
Sector performance was led by Technology, up 2.2% for the week and now up 28.9% year-to-date, while Utilities and Energy lagged. Growth stocks outperformed value across the board, with large-cap growth up 2.38% versus large-cap value roughly flat.
Emerging Markets Gain Ground
Internationally, emerging markets continued to stand out, with the MSCI EM Index up 1.29% for the week and 25.52% year-to-date, while developed markets (MSCI EAFE) added 0.20% and are up 11.38% for the year.
Looking Ahead
Looking ahead, this week’s PCE inflation reading and the September nonfarm payrolls report will be the key inputs shaping whether this growth-and-rates dynamic continues to hold.
As Always
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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