Wall Street had made a positive start on Monday as investors looked ahead to earnings reports as well as limited updates on the situation in Israel, however conflict deepened over the week, sending investors into safe havens. There was particular pressure on Thursday following comments from Federal Reserve Chair Jerome Powell who delivered mixed messaging. Powell initially indicated that the Fed was unlikely to raise interest rates again but said that he didn’t see any evidence that the central bank’s current stance would push the economy into recession.
For the week the S&P 500 ended 2.4% lower, with most sectors in negative territory apart from consumer staples and energy. The Dow Jones fell 1.6% while the Nasdaq was down 3.2% and drifting closer to bear market territory. Among notable earnings reporters, Tesla suffered its worst week of the year, down over 15% after the electric vehicle maker's third quarter revenue missed expectations. Meanwhile Netflix was a bright spot, rallying after a surge in subscriber growth. The yield on the 10-year Treasury yield briefly touched 5% on Thursday for the first time since 2007. It settled at 4.91% for the week.
European stocks also faced a challenging week given rising geopolitical tensions and interest rate concerns. The pan-European STOXX 600 was down 3.4% seeing its worst close since the start of the year. A number of European Central Bank policymakers highlighted that price pressures remained high in the eurozone with upside risks from surging oil prices as a result of the Middle East conflict. The prospect of higher for longer rates pushed up eurozone government bond yields. Meanwhile the yield on the UK 30-year gilt hit its highest level since 1998 on Friday, touching 5.16%.
The Nikkei 225 retreated 3.3%, with core inflation easing but remaining above the Bank of Japan’s target. The yen remained close to the key 150 level against the US dollar which could prompt government intervention. Meanwhile the BoJ once again intervened in the bond market as the 10-year Japanese government bond yield surged to a new decade high of 0.83%. Chinese markets were also lower for the week with the Shanghai Composite losing 3.4% in its biggest loss since December 2022 and the Hang Seng down 3.6%. This was even after GDP data came in better than expected. The health of the property market remained in question with developer Country Garden failing to make an interest payment on a dollar bond within the grace period, putting it at risk of default.
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