Week 41 was defined by choppy macroeconomic data and an end-of-week reversal in US equities. We saw AI stocks tumble mid-week before the broad market rallied on Friday as investors pivoted their attention toward the upcoming earnings season. Against a backdrop of sticky inflation signals and hawkish central bank communications, our portfolio remains in a steady holding pattern. There are no major fundamental updates for our core positions this week, and we are maintaining our current investments.
Week 41 Recap
US Equities and the Mid-Week Reversal
The stock market experienced significant intraday volatility during the week of October 5th to October 9th. After touching record highs earlier in the week, the market hit a speed bump on Thursday, October 8th, when the Nasdaq and S&P 500 closed sharply lower as AI stocks tumbled. However, the market showed its underlying resilience on Friday, October 9th. The Dow, S&P 500, and Nasdaq all rallied to cap the week as investors shook off the mid-week jitters and looked ahead to the third-quarter earnings season. The S&P 500 finished the week at 7,811.54, and the Nasdaq-100 essentially ended the week flat, sitting just off Tuesday's record high. This price action confirms that institutional investors are still buying the dip and remain exposed to the secular growth trends we track, despite the macroeconomic headwinds.
Macro Data: Sticky Inflation and a Hawkish Fed
The economic calendar was densely packed this week, delivering several data points that highlight the "higher for longer" narrative.
- Monday, October 5th: The ISM Services PMI for September fell slightly to 54.9 from 55.4 in August. While the employment index crossed back into expansionary territory at 50.1, the prices paid index showed that price pressures in the services sector continue to intensify. This is exactly the kind of sticky inflation the Federal Reserve aims to eradicate.
- Wednesday, October 7th: The FOMC Minutes from the September meeting were released, revealing a unanimous rate hike but divided reasoning among committee members. The minutes confirmed a clear bias toward further tightening later this year given persistent inflation risks. Consequently, Wall Street fell on the day as the reality of a restrictive policy path set in.
- Thursday, October 8th: Weekly initial jobless claims fell to 197,000, the lowest level since July. This robust labor market data removes immediate recession fears but also tempers any near-term hopes for a dovish pivot from the Fed.
- Friday, October 9th: The preliminary University of Michigan Consumer Sentiment survey dropped to a five-month low of 46.3. Views on current economic conditions hit an all-time low as inflation continued to weigh heavily on households.
Bonds: Yields Stabilize After the Spike
Following the 24-year highs touched in Week 40, the US 10-Year Treasury yield stabilized during Week 41. The yield held steady at 5.24% on Friday, October 9th, down about 5 basis points for the week. The bond market is digesting the strong economic data and the Fed's hawkish tilt, but the retreat from the 5.34% peak provided a slight pressure release valve for equity valuation multiples heading into the weekend.
Gold, Silver, and Chinese Internet Equities
The precious metals complex traded choppily, with spot gold hovering around $4,194 per ounce. Our gold and silver miner positions have held up remarkably well. The fundamental thesis remains entirely intact: major miners continue to generate substantial free cash flow at current spot prices, and we view any yield-driven weakness as an opportunity rather than a reason to exit.
Chinese tech stocks continue to consolidate. The AI arms race in China is intensifying, with Tencent recently eyeing large offshore bond sales to fuel its computing infrastructure buildout. Meanwhile, Alibaba and Tencent are holding their established support bases following Beijing's recent targeted stimulus measures. This lack of headline volatility is precisely what we want to see, allowing fundamental business execution to take center stage ahead of their upcoming earnings.
Week 42 Outlook
Week 42 (October 12th to October 18th) brings a critical inflation print that will test the market's conviction regarding the Federal Reserve's policy path. The focus shifts squarely to the September CPI report, which will heavily influence overall market sentiment and rate expectations for the remainder of the year.
Key Events
- Wednesday, October 14th: The Bureau of Labor Statistics will release the September Consumer Price Index (CPI) at 8:30 a.m. ET. This is the most important macroeconomic data point of the week. Given the FOMC's hawkish bias and the sticky services inflation seen in the ISM report, a hot CPI print could send the 10-Year Treasury yield right back toward its recent 24-year highs. Conversely, a cooling print would provide much-needed relief to equity multiples.
- Earnings Season Kicks Off: While our core holdings are not reporting yet, major US banks and select industrial companies will begin releasing their third-quarter results. These early reports will set the tone for consumer health and corporate margins heading into the megacap tech prints later in the month.
Positioning Into Week 42
To provide a transparent assessment of our current standing: our portfolio's recent performance has been somewhat subdued, lagging behind the broader index. However, as long-term investors, we remain firmly focused on underlying fundamentals rather than short-term market noise or day-to-day index fluctuations.
The earnings season is about to begin in earnest, and the primary catalysts for our portfolio are rapidly approaching. Our core holdings will report their earnings between early and mid-November. Until these reports are released, we anticipate a period with few major fundamental updates regarding our positions.
In the absence of breaking news or urgent macroeconomic shifts, we have no immediate actions planned and are maintaining our current allocations. Should we observe a deeper market pullback in the coming weeks, we may consider making tactical adjustments or adding to our positions at more attractive valuations. However, we prefer to exercise patience at this juncture.
For Week 42, our strategy remains strictly observational. We are holding our current investments, allowing the macroeconomic data to unfold, and waiting for the fundamental data from the upcoming Q3 prints to dictate our next move. We will let the market do the work.