The week had started on positive footing, welcoming the news of a deal in which Amazon would supply cloud computing services to OpenAI. Artificial intelligence (AI) related names have helped fuel gains this year, however there have been growing doubts about stretched valuations and market concentration, prompting a pullback in the week. Nvidia and Oracle, which have been amongst the top gainers this year, fell 7% and 9% respectively for the week. The tech-heavy Nasdaq declined 3%, in its worst week since Trump unveiled his sweeping tariffs back in April. Meanwhile the S&P 500 lost 1.6% and the Dow Jones Industrial Average dropped 1.2%.
Despite the negative overall performance, many of the S&P 500 sectors actually managed to rise. Amongst them was healthcare, gaining on news that Eli Lilly and Novo Nordisk had reached a deal with the Trump administration to lower prices for weight loss drugs via the TrumpRX website. Energy was also a top performer, even as oil prices declined. There were growing doubts around the US government shutdown, which has stretched out to be the longest on record. As a result, markets have had to rely upon private sector data. Friday saw the release of the University of Michigan’s consumer sentiment index for November, which dropped to its lowest level since June 2022, with the shutdown cited as the main reason for the deterioration in the current outlook. Treasury moves were mixed with yields on shorter dated notes declining while the 30-year yield moved up.
Concerns about elevated valuations filtered across to Europe, prompting risk-off sentiment. The pan-European STOXX 600 dropped 1.2% for the week and regional indices also experienced losses. Corporate earnings releases also painted a mixed picture, eliciting some sharp stock price reactions. Similarly on the data front, the eurozone composite Purchasing Managers’ Index rose to 52.5 in October, its highest level since May 2023, whereas retail sales saw their third monthly contraction. On the central bank front, the Bank of England left its key rate at 4%, in a 5-4 split between policymakers. Governor Andrew Bailey was amongst those who voted to keep rates on hold, but viewed inflation risks having come down, possibly setting the stage for a December cut.
Japan’s equity markets notched declines for the week, with the Nikkei 225 losing 4.1% while losses on the wider Topix index were less severe. They too were affected by a sell-off in AI linked names. In contrast Chinese markets bucked the downtrend and ended the week higher. The Shanghai Composite gained 1.1% and the Hong Kong Hang Seng rose 1.2%. Sentiment continued to be supported by the improvement in US-China relations, offsetting weaker trade data in which exports saw their first decline since February.