Wentz Weekly: Trade Hopes and Softer Inflation Lifts Markets

Wentz Weekly Insights
Trade Hopes and Softer Inflation Boosts Sentiment, Lifts Markets

Despite more uncertainty and rising tensions around the trade situation with China, stocks had another strong week with the S&P 500 ending the week at another new record high after rising 1.92%. It wasn’t only the S&P 500, all major US indices (including the Dow, Nasdaq, and Russell 2000) reached new highs last week. Risk assets and big tech outperformed, but small caps led the way with the Russell 2000 up 2.50%.

In the Treasury market, yields were only slightly higher for the week. The 2-year yield rose 3 basis points while the 10-year rose 1 basis point to 4.02%, but this is after it fell below 4.00% for most of the week, dropping below 4% for the first time this year.

There were several factors driving stocks higher last week including a softer inflation report, higher chance for further easing in financial conditions by the Fed, stronger earnings growth, and hopes for a China trade deal.

The consumer price index was scheduled to be released two weeks ago but was delayed indefinitely due to the government shutdown. However, the September report is used to calculate the cost-of-living adjustment for many government related benefits and decisions, like social security benefits, tax brackets, the government budget, and others, so the government called back a group of workers at the BLS to put the data together.

The inflation report was softer than expected as the index increased 0.3% in the month and 2.9% over the past year, both 0.1% lower than expected. The core index rose 0.2% in the month and 3.0% over the past year, also both 0.1% lower than expected. We noticed several categories, which may be sensitive to tariffs like furniture, apparel, and appliances, see larger increases than usual, but it will still take time to tell if this is a persistent impact or just part of normal monthly fluctuations.

The softer data likely inks in another rate cut at this week’s Fed meeting and increases the chances for another rate cut in December, which has been another catalyst for the continued market upside. The Federal Reserve meets this week and will announce its rate decision Wednesday afternoon where future markets are putting 99% odds on a rate cut. The Fed may also announce an end, or a timeline to end, to quantitative tightening (reducing the balance sheet or draining reserves/cash out of the financial system), another tailwind for stocks.

One of the bigger stories all week was the ongoing trade uncertainty between the US and China. Several announcements raised tensions between the two nations, including Trump threatening an additional 100% tariff on all imports, imposing export controls on US software to China, and launching an investigation in China’s 2020 implementation of the first trade agreement in 2020.

Markets opened this week on a much more optimistic note following weekend reports that Treasury Secretary Scott Bessent’s said his discussion with Chinese representatives in Malaysia yielded a “very successful framework.” In addition, China’s representative said both sides reached a “preliminary consensus.” Topics leading the discussions were export controls, purchases of agricultural products, access to rare earth minerals, TikTok, fentanyl, and extending the suspension of reciprocal tariffs (set to expire November 10).

Next, President Trump will meet with Chinese President Xi in South Korea at the APEC Summit during his Asia tour where he hinted a “complete deal” will be made.

Outside of trade, one of the bigger risks to the economic outlook over the shorter term is the ongoing government shutdown. The shutdown is entering its fifth week and approaching the longest ever and Congress still appears far apart on a continuing resolution. We are entering a critical phase as a series of funding cliffs are closer that will affect Americans more, but it could also apply more pressure on Congress to find an agreement.

The upcoming impacts include missed paychecks for employees ranging from air traffic controllers to military, expiration of Affordable Care Act subsidies, SNAP benefits, and impacts on head start program, to name a few.

Earnings season has kicked into high gear with the peak coming this week and next. Earnings have been mostly better than expected but this week will tell a lot more as over 30% of the S&P 500 is scheduled to report quarterly results including five of the Magnificent names (Microsoft, Apple, Alphabet/Google, Meta/Facebook, and Amazon). 

Week in Review:

It was another solid week for stocks with all four major US indices finishing the week at fresh record highs, and volatility falling over 20%, driven by higher confidence in a US/China trade deal, better than expected earnings, and hopes for more rate cuts. The indices finished the week as follows: Russell 2000 +2.50%, Nasdaq +2.31%, Dow +2.20%, and S&P 500 +1.92%. Treasuries were little changed – the 2-year yield rose three basis points to 3.50% while the 10-year yield rose one basis point to 4.02%. The dollar index increased 0.53%, gold fell 1.71%, while Bitcoin rose 4.29% in a risk-on week. Oil rose 6.88% from multi-year lows after the US and European allies put more sanctions on Russian oil.

Recent Economic Data

• Consumer Price Index: The consumer price index for September was scheduled to be released two weeks ago but was delayed due to the shutdown like many other data reports. However, the September report is used for many government cost-of-living adjustments, like social security benefits, so the Bureau of Labor Statistics called back some workers to put together the report (most data was collected prior to the shutdown) released it Friday morning: The consumer price index increased 0.3% in September, a little less than the 0.4% increase that was expected. The inflation rate was 3.0% over the past 12 months, accelerating from 2.9% in August but also 0.1% lower than expected. Food prices were up 0.2% while energy prices were up 1.5% due to a pickup in gasoline prices, despite seeing a solid decline in energy services like electricity and utilities. Core prices, which exclude these two categories, rose 0.2% and were up 3.0% over the past 12 months, both 0.1% lower than expected as well. Shelter prices, or housing which is by far the largest weight in the index, has normalized after seeing big increases the last couple years, rising just 0.2% in the month and 3.6% the past year. Certain goods that may be related to tariffs saw sizeable increases, like furniture, clothes, and appliances, all increasing near 1% in the month alone. The index for inflation of services excluding shelter was 0.2% in the month and 3.7% over the past year.

• Existing Home Sales: Some positives and negatives out of the existing home sales report. In September the number of existing homes sold was a seasonally adjusted annualized rate of 4.060 million, slightly less than expected, increasing 1.5% in the month and up 4.1% from a year ago. Existing home sales are measured by home closings so this reflects deals made in July and August when mortgage rates were coming down still but not as low as they are now. Inventory was the big story with the number of existing homes on the market rising to 1.55 million units, up 14% from last year to the highest level in 5 years, although still below historical averages. This has helped prices continue to move higher with the median sales price at $415,200, up 2.1% from a year ago. First time homebuyers made up 30% of total sales, up from 26% a year ago. The average home was on the market for 33 days, up from 28 days a year ago.

• New Home Sales: Delayed

• Mortgage Rates: The average 30-year mortgage rate for the prime borrower was 6.19% as of last week, according to the weekly Freddie Mac mortgage survey, falling to the lowest level of the year and nearly to the lowest level in almost three years. Mortgage rates peaked this year in January at just over 7% and have fallen nearly a full percent as Treasury rates move lower over the expectation of rate cuts by the Fed.

• Jobless Claims: Delayed

• Consumer Sentiment: The consumer sentiment index was 53.6 in October, lower than the 55.0 from the prior survey and the weakest since May. The present situations index was 58.6 which is down from the prior reading of 60.0 for the lowest level since mid-2022. The index on expectations was 50.3, down from 51.2 for the lowest level since May. The expectation of inflation over the next year was unchanged at 4.6%, though still elevated, while the 5-10 year inflation expectation was 3.9%, ticking up from 3.7% for the highest expectation since June.

Company News

• Apple: The Financial Times and Bloomberg reported last weekend Apple’s new and redesigned iPhone 17 is off to a faster start than usual and is experiencing the strongest demand for a new release of its iPhones since the pandemic, which used data from supply chain checks and carrier data. Bloomberg said the iPhone 17 series outsold the iPhone 16 by 14% over the respective first 10 days on sale in the US and China. Shares reached new all-time highs after rising 3.9% on the news. Other reports show its shipping times are longer than in recent years and its wait times are 13% higher than last year. Nikkei Asia later reported Apple instructed suppliers to increase orders for the iPhone 17 models while reducing orders for the iPhone Air due to a tepid response from customers.

• Disney: Disney reportedly saw roughly 7 million customers cancel their monthly subscriptions last month, between Disney+ and Hulu, in reaction to its move to suspend Jimmy Kimmel’s late night talk show Jimmy Kimmel Live!, according to a research report from Antenna. This reflected a cancellation rate (the number of cancellations divided by the number of total subscribers) of 8% for Disney+ and 10% for Hulu, both double the rate seen in August.

• Warner Bros. Discovery: Warner Bros. Discovery said it is taking a strategic review of its assets after receiving multiple unsolicited interests for the entire company as well as for just its studio and streaming business. CNBC reported Netflix and Comcast are interested in WBD while Paramount Skydance is close to a $20/share bid. Reuters later reported WBD rejected a $24/share takeover bid by Paramount Skydance, an offer that was majority cash. WBD was just trading at just $12 per share prior to takeover speculation.

• Alphabet/OpenAI: Alphabet shares, parent company of Google, were down almost 3% last Tuesday as OpenAI introduced through a livestream event a new AI-powered web browser. The new OpenAI web browser is called Atlas and will have an “Agent” mode that will allow users to continue browsing while the agent takes actions for the user like making tasks, reservations, or adding ingredients to a shopping cart for purchase. The news impacted Alphabet due to Google’s Chrome browser being by far the most popular and most used web browser with an estimated 3.5 billion users around the world.

• Six Flags: Six Flags, parent company of Cedar Point after merging last year, shares were up almost 20% after it was reported activist investor Jana Partners and Travis Kelce are taking a 9% stake in the company in effort to push for changes, including improved marketing, improving customer experience at the parks, modernizing technology, refresh leadership, and pursue a potential sale, as well as to improve shareholder value

• Amazon: A NY Times article said Amazon’s robotics team is making it a goal to automate up to 75% of its operations. It said the company believes it can avoid hiring 160,000 employees it would otherwise need by 2027 through increased automation, this after tripling its workforce to 1.2 million since 2018, along with replacing 500,000 current jobs with robots. It also believes this would save $0.30 on each item the company picks, packs, and delivers.

• General Motors: GM announced in its “GM Forward” event that it plans to launch new software features that will let drivers talk to their cars via the conversational Google Gemini AI and let them take their hands off the wheel and eyes off the road. The conversational AI will begin rolling out in vehicles next year while the AI-driven driver assistance system will roll out over the next three years. 

• Super Micro Computer: Shares of Super Micro Computer moved lower Thursday after it said it expects revenue to be around $5 billion versus prior guidance of $6-$7 billion, however it noted some design win upgrades pushed expected Q1 revenue into Q2 resulting in a lower guidance for this quarter. It also noted it is seeing “outstanding levels of customer engagements for newly released AI liquid cooled solutions” for Nvidia’s new systems and key customers are ramping up orders. It reiterated its full year forecast, saying revenue of “at least $33 billion with the expectation of delivering more.”

• JPMorgan: Bloomberg reported that JPMorgan is preparing to announce it will let institutional clients use Bitcoin and Ether assets as collateral for loans by the end of the year and will use a third-party custodian to hold the pledged cryptocurrencies. The bank recently allowed crypto related ETFs as collateral.

• Quantum Computing Stocks: The WSJ reported the Trump administration is negotiating taking equity stakes in several quantum computing companies, including IonQ, Rigetti Computing, and D-Wave Quantum, in return for federal funding, sending all quantum computing stocks higher by double digits late last week. The report said the companies are discussing minimum funding award from the Commerce Department of $10 million each. The White House later denied the report.

Other News:

• Australia Rare Earth Agreement: The US and Australia signed an agreement to boost cooperation in accessing rare earth minerals and other critical minerals in another effort to lessen America’s reliance on China’s rare earth supply. The plan calls for projects worth a total of up to $8.5 billion with each side will contributing $1 billion over the next six months to joint projects. Australia holds the fourth largest known deposits of rare earth minerals.

• Export Restrictions on US Software: Treasury Secretary Scott Bessent said last week in a CNBC interview that the Trump administration is considering a plan to expand export controls to China to include products made with or containing US software, adding if anything were to happen it would be in coordination with G-7 allies. The move would be in retaliation of China’s export controls on rare earth minerals. Trump said earlier in the moth he would implement export controls on “any and all critical software” beginning November, with some reports saying it could include things from jet engines to laptops.

• Trump/Putin Meeting: The planned meeting between President Trump and President Putin has been cancelled with no plans to reschedule according to the White House, which follows a call between Marco Rubio (Secretary of State) and Russia’s Foreign Minister. They said the call was still productive, however the Russian Foreign Minister made it clear to Rubio that Russia’s demands in Ukraine have not changed.

• Russia Sanctions: Oil prices jumped over 5% Thursday after the Trump administration announced further restrictions on two of Russia’s largest oil companies, Rosneft and Lukoil, citing Russia’s lack of commitment to end the war in Ukraine with some reports noting the sanctions are related to the planned Putin/Trump meeting falling through. The administration said the sanctions will hurt Russia’s ability to raise revenue to funds its war. In addition, the European Union announced a package of energy sanctions of its own as well as banning Russian LNG imports.

• Lack of Economic Data: The WSJ reported the Federal Reserve stopped receiving data from the payroll services company ADP, who releases the “ADP Payroll” report every month, the Wednesday prior to the more important Department of Labor monthly employment numbers. The Fed uses private sector data to complement government data and ADP provided it access to data that included anonymized information on employment and earnings that covers 20% of the nation’s private workforce. The reason data has stopped being provided to the Fed is unclear. Outside of a couple data reports late September, the Fed has had no labor market data to assess for policy decisions since early September.

• Canada Trade Talks: Trump said he is terminating trade negotiations with Canda immediately due to its government ad aired by the Ontario province that used former President Reagan’s speech where he mentioned the negative consequences of tariffs. The Reagan Foundation said the ad misrepresented the Presidential Radio Address by Regan in 1987 and edited Reagan’s remarks without permission, while the Ontario government did not receive permission to use it and is now reviewing legal options over its use of the ad.

Did You Know…?

Cost of Living Adjustments:

The Social Security Administration announced that 75 million Americans will see a 2.8% cost-of-living adjustment for Social Security benefits in 2026, a slightly higher increase than the 2.5% bump that was seen in 2025. The average monthly benefit for retirees will be $2,071 per month, up $56 from 2024 and up 21% since the start of the pandemic. For those still working, the maximum income subject to social security tax will increase to $184,500, up from $176,100

Medicare Open Enrollment

Medicare open enrollment period runs from October 15 to December 7 each year and during this period, individuals are able to make changes to their current Medicare coverage. Individuals on Medicare should receive an Annual Notice of Change and/or Evidence of Coverage for Medicare Advantage or Part D plan. This is a good time to review coverage, as medical needs, benefits, and premiums may have changed over the year. During this time here are some things to consider:

• Will your primary doctor still accept you Medicare Advantage Plan?
• Have your medical needs changed? Different plans offer different benefits and different costs
• Are there comparable, lower cost plans available? Don’t forget to consider out-of-pocket costs when comparing options
• Are you medications still on your plan’s list of covered medications?