Market Participants Entered The Week With News That Israel Declared War On Hamas After A Surprise Attack Launched By Hamas Last Weekend.
The potential for a wider regional clash weighed on sentiment this week, but reports so far give the impression that the Israel-Hamas war is still a two-party conflict.
Geopolitical angst mounted on Friday following news that Israel warned 1.1 million residents in the northern Gaza Strip to evacuate within 24 hours, which is presumably a pretense to a ground attack in Gaza that will escalate the war. That created some nervousness in the market, which also heard Iran's foreign minister say that Israel's continued siege of Gaza "will face reactions in other areas."
The stock market still fared okay this week, aided by a decline in Treasury yields and some technical buying interest related to the idea that the market was oversold and due for a bounce. Gains were registered in the first half of the week, but buyer conviction fell by the wayside as it got closer to the weekend.
While this week's Producer Price Index and Consumer Price Index reports were not as friendly as investors envisioned, the 10-yr note still did well with the help of safe-haven flows and expectations that inflation rates will improve in coming months as higher rates work in slowing the economy. The 2-yr note yield fell one basis point this week to 5.05%, but the 10-yr note yield declined 15 basis points to 4.63%.
The Treasury market also weathered some relatively disappointing auction results this week for the 3-yr note, 10-yr note, and 30-yr bond. Each was met with relatively soft demand, which came to a head on Thursday following the 30-yr bond auction, prompting a noticeably back up in rates. When geopolitical angst picked up on Friday, however, a rush of safe-haven flows repaired a lot of the weakness following Thursday's sell off.
Treasuries were also digesting comments from several Fed officials this week who spoke to the idea that the rise in long term rates had tightened financial conditions and may give them leeway to precede carefully on the policy rate.
Oil prices climbed this week in another manifestation of geopolitical worries. WTI crude oil futures jumped 6.0% to $87.80/bbl.
Eight of the S&P 500 sectors registered a gain with energy (+4.5%) leading by a wide margin. The consumer discretionary sector (-0.7%) saw the largest decline.
Earnings season kicked off this week with generally good results, highlighted by JPMorgan Chase, Wells Fargo, Citigroup, and UnitedHealth.
In other news, the House failed to elect a new Speaker this week. Rep. Steve Scalise (R-LA) prevailed in the GOP conference vote, but withdrew his name after failing to get enough support. This leadership void is a reminder that the House can't conduct business, which raises the uncertainty about Congress reaching a budget agreement before the Nov. 17 deadline.
Nasdaq Composite: -0.2% for the week / +28.1% YTD
S&P 500: +0.5% for the week / +12.7% YTD
Dow Jones Industrial Average: +0.8% for the week / +1.6% YTD
S&P Midcap 400: -0.5% for the week / +0.5% YTD
Russell 2000: -1.5% for the week / -2.4% YTD