Last week, the U.S. stock market continued its strong performance, with bank stocks' impressive earnings reports driving the rise of cyclical sectors. Netflix's earnings were the main force that propelled the three major stock indices to achieve a sixth consecutive weekly increase at the end of the trading session, marking the longest record since the end of 2023.
Fund flow data indicates that over $20 billion was invested in U.S. stock funds last week, with market confidence remaining high. As expectations for a Federal Reserve rate cut stabilize, earnings performance, including that of large technology stocks, will become a catalyst for short-term market trends and a trigger for volatility.
Retail Strength Stabilizes Rate Cut Pricing
After the Federal Reserve initiated a rate cut cycle, the U.S. economy has continued to show sufficient resilience.
The monthly retail sales rate, dubbed the "terror data," grew by 0.4% in September, far exceeding market expectations. Falling fuel prices have given consumers more money to spend outside, supporting expectations for strong economic growth in the third quarter. At the same time, the labor market has recovered somewhat. The number of initial jobless claims last week decreased by 19,000 compared to the previous week, falling back below the psychological threshold of 250,000. It should be noted that due to factors such as hurricanes and strikes, employment market data may fluctuate recently, but institutions generally believe that the overall impact is controllable.
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Bob Schwartz, a senior economist at Oxford Economics, stated that the underlying trend of consumer spending remains strong. In his view, a resilient labor market, robust household balance sheets, and declining interest rates mean that consumer growth is expected to remain close to 3% in the coming year, becoming a factor of concern for an economic soft landing.
Medium to long-term U.S. Treasury yields fluctuated within a narrow range, with the 2-year U.S. Treasury note, closely related to interest rate expectations, rising by 1.2 basis points to 3.95%, and the benchmark 10-year U.S. Treasury yield rising by 0.2 basis points to 4.07%. Federal funds rate futures indicate that the pricing for a November Federal Reserve rate cut has essentially stabilized, remaining around 80%, and the market has abandoned the idea of an aggressive 50 basis point rate cut.
Several Federal Reserve officials who spoke over the past week also hinted at the prudence of future policy paths. Federal Reserve Governor Waller believes that recent economic data, including a hotter-than-expected consumer inflation report and a strong employment report, suggest that the economy may not slow down as expected, and the pace of rate cuts should be more cautious than required at the September meeting. Atlanta Fed President Bostic stated that there is no rush to bring interest rates down to a neutral level.
Jonathan Millar, a senior U.S. economist at Barclays Bank, released a report stating that the economy has been in a resilient and self-reinforcing virtuous cycle throughout its expansion, driven by increases in household wealth and labor supply. "Whether consumer spending continues to deteriorate requires some phenomena to observe, such as consumers strengthening precautionary measures, increasing savings rates, or businesses being unwilling to hire despite strong demand," he wrote.
Schwartz stated that some employment indicators are sending warning signals, including a decline in employment rates, an increase in the number of long-term unemployed, and a deterioration in consumer views of the labor market. However, the decline in labor market mobility indicates a slowdown in wage growth, "The Federal Reserve is less concerned about wage growth increasing inflationary pressures, and a slower pace may be welcome, especially considering the uneven decline in other components of inflation." He believes that the Federal Reserve will continue to normalize interest rates to ensure that the economy is on the path to a soft landing.The earnings season begins to dominate the market
Last week, the U.S. stock market continued its upward trend, with the Dow Jones Industrial Average breaking through 43,000 points and the S&P 500 index approaching 5,900 points, setting new historical highs together. The strong performance of the earnings season is also one of the boosters for the hot stock market. For example, Netflix's stock price soared by more than 11% on the 18th, setting a new high, after the streaming media giant's user growth exceeded Wall Street's expectations and stated that it expects to continue growing by the end of the year.

Dow Jones Market Statistics show that the market presented a general upward trend over the past week, with the utilities and real estate sectors rising by more than 3%. Finance, materials, and non-essential consumer goods also rose by more than 1% respectively. The performance of Goldman Sachs, Morgan Stanley, and Bank of America boosted confidence in the U.S. economy, which in turn led to the strength of many cyclical sectors. The energy sector was one of the few industries that weakened against the trend, dragged down by the decline in international oil prices.
Fund flow shows that, benefiting from positive earnings reports, optimistic sentiment about the Federal Reserve's interest rate cut in November, and signs of cooling inflation, investors continue to buy U.S. stocks. According to data provided by the London Stock Exchange Group (LSEG) to First Financial Journalists, the net purchase of U.S. stock funds increased nearly six times week-on-week to $20.08 billion. At the same time, money funds, representing the sentiment of risk aversion, saw fund sales for the first time in three weeks, falling from historical highs.
UBS stated that although stock trading may be at historical highs, it is not the time to cash out. The company wrote in a report to its clients: "Our analysis of the past 60 years shows that the S&P 500 index's returns in the 3 months, 6 months, and 12 months after setting a historical high are basically the same as in all other periods. At the same time, we expect the macroeconomic and profit environment to remain favorable, which supports continued investment in stocks." However, the bank believes that economic growth will gradually slow down starting from the fourth quarter, so it advises investors to remain selective and focus on high-quality companies with strong balance sheets and stable profits. UBS stated that many companies that meet this standard are in the technology industry.
Charles Schwab wrote in its market outlook that as long as the data continues to validate the argument that the U.S. economy will have a "soft landing" or "no landing," stock indices will continue to remain higher. The heat of the earnings season began to rise, and the cautious guidance of semiconductor equipment manufacturer ASML about the slowdown in the chip market recovery once damaged the sentiment of technology stocks. Subsequently, TSMC's earnings report revitalized the industry, and Nvidia also set a historical high.
The institution believes that investor sentiment is biased towards the bulls, but not extreme. In addition, small-cap stocks that have performed relatively poorly seem to be catching up (the Russell 2000 index is challenging a two-year high), which may help maintain the recent upward trend. The economic data schedule for the next week is light, so the focus will be on corporate performance. Judging from the situation in the past week, Amazon and Tesla's earnings reports will become catalysts for market fluctuations.