The Fed holds as technology stocks retreat

Summary

Last week in markets

Markets navigated a busy week of Federal Reserve policy decisions, economic data and corporate earnings. The Fed held its federal funds target range at 3.75% to 4.00%, although two officials favored a 25-basis-point increase, highlighting persistent concerns about inflation. Third-quarter GDP grew at an annualized rate of 3.4%, accelerating from 2.2% in the second quarter. Meanwhile, September headline personal consumption expenditures (PCE) inflation reached 3.6% year over year, while core PCE inflation held at 3.1%. Despite strong economic data, the 10-year Treasury yield ended Friday at 4.94%, down six basis points from Monday, as a late-week equity selloff increased demand for Treasurys.

Equity markets gained through midweek before reversing course as disappointing technology earnings raised questions about the scale and potential returns of artificial intelligence (AI) investment. The Nasdaq fell 2.9% on Friday, while the S&P 500 Total Return Index declined 1.3% from Monday's close through Friday. The pullback reflected a reassessment of elevated technology valuations rather than a broader shift away from growth. Energy markets faced a different set of pressures. Brent crude closed at $113.78 per barrel, up 2.7% from Monday, as renewed concerns about Middle East supply disruptions pushed oil prices higher.

The week ahead

Upcoming economic data will provide a clearer picture of whether growth momentum carried into the fourth quarter. Monday's ISM Manufacturing Index is expected to reach 54.7, followed by Tuesday's Job Openings and Labor Turnover Survey (JOLTS). On Wednesday, the ADP employment report is expected to show 75,000 new jobs, while the ISM Services Index is forecast at 54.8. The Fed's Senior Loan Officer Opinion Survey will offer additional insight into credit conditions, particularly whether banks are tightening lending standards despite resilient economic growth. Continued strength across these indicators could reinforce expectations that monetary policy will remain restrictive.

Friday's employment report will be the week's most closely watched economic release. Consensus forecasts call for 65,000 new payrolls, an unemployment rate of 4.2% and monthly wage growth of 0.3%. Beyond the headline figures, investors will focus on private-sector hiring, labor force participation and revisions to previous reports to assess the underlying strength of the labor market. Stronger-than-expected employment data could push Treasury yields higher and renew expectations of another rate increase. Conversely, a materially weaker report could signal that hiring is slowing even as broader economic output remains resilient.

International policy decisions and political developments will also influence market expectations. The Bank of England meets Thursday, with markets anticipating a 25-basis-point rate increase to 4.00% as rising energy costs add pressure to the inflation outlook. In the U.S., Tuesday's midterm elections could influence expectations for fiscal policy, regulation, trade and future Treasury issuance. Meanwhile, developments in the Middle East remain an important risk to monitor. With Brent crude already above $110 per barrel, further supply disruptions could tighten financial conditions and intensify inflation pressures, even without an increase in underlying demand.