Weekly Market Recap

Equity markets

Last week, the MSCI All Country World Index (MSCI ACWI) lost -2.7% (8.6% YTD).

The S&P 500 Index finished a volatile week down -2.7% (8.8% YTD) as investors weighed the implications of the midterm elections. The Dow Jones Industrial Average held up relatively well but still ended lower.

The Russell 1000 Growth Index returned -5.0% (-5.1% YTD), the Russell 1000 Value Index -0.5% (23.8% YTD), and the Russell 2000 Index -2.0% (12.2% YTD). The technology-heavy Nasdaq Composite fell -3.4% (6.3% YTD).

A Wednesday rally gave way to a sharp, broad-based sell-off on Thursday, followed by a partial recovery on Friday. Democrats’ stronger-than-expected showing initially fuelled hopes that a shift in the political landscape could ease geopolitical tensions, particularly with Iran, before investors reassessed the implications for corporate earnings and regulation. Concerns about tighter oversight of the artificial intelligence (AI) industry, compounded by disappointing outlooks from major semiconductor companies, triggered heavy selling in technology shares on Thursday: the Nasdaq 100 fell 6.4%, and the Philadelphia Semiconductor Index fell more than 12%, both recording their worst sessions since March 2020. Defensive sectors, including consumer staples and healthcare, were relatively resilient, and buying the dip helped stocks partially recover on Friday.

Apple, the largest company in the S&P 500 by market capitalisation, reported record revenue and earnings per share for its fiscal fourth quarter, beating expectations thanks to strong iPhone and Mac sales and a rebound in China. The shares initially fell after the report but recovered later in the week.

In Europe, the MSCI Europe ex-UK Index gained 0.5% (11.3% YTD). Among major stock indexes, Germany’s DAX Index was flat (5.4% YTD), France’s CAC 40 Index rallied 2.1% (2.9% YTD), and Italy’s FTSE MIB Index rose 1.1% (14.9% YTD). Switzerland’s SMI slipped -0.1% (15.0% YTD). The euro was little changed against the US dollar, closing the week at USD 1.11 per EUR.

European markets were largely driven by volatility in AI and technology shares and by some rotation away from US equities. Concerns about the enormous capital requirements of AI infrastructure and whether those investments will generate adequate returns continued to weigh on semiconductor and AI-linked stocks. European markets generally avoided the steeper declines seen in the US, mainly because of their lower exposure to AI technology stocks. Banks were notable beneficiaries, while defence names fell.

The FTSE 100 Index in the UK lost -0.5% (10.4% YTD), while the FTSE 250 Index of smaller companies added 0.3% (12.1% YTD). The British pound was broadly stable against the US dollar, closing the week at USD 1.34 per GBP.

In Japan, the TOPIX Index dropped -6.5% (11.1% YTD), and the TOPIX Small Index fell -6.1% (9.7% YTD). Sentiment towards AI reversed abruptly after the US midterm elections. Following a brief post-election rally in US stocks, concerns that increased political and regulatory scrutiny could slow AI data centre expansion triggered a sharp sell-off in technology shares. Japanese equities slumped on Friday, led by semiconductor and AI-related shares. The Nikkei 225 Index, down 9.3% for the week, entered a technical bear market, more than 20% below its June record high. Domestically oriented sectors such as real estate, transportation equipment and pharmaceuticals were more resilient earlier in the week, but all sectors declined on Friday.

In Australia, the ASX 200 Index rose 1.4% (7.6% YTD) despite a challenging global backdrop. Australian government bond yields fell notably, reflecting the RBA’s dovish pivot and a broader rally in global rates. The Australian dollar weakened 2.1% against the US dollar, recording its largest weekly loss since March.

In Canada, the S&P/TSX Composite rose 0.5% (15.0% YTD).

Emerging markets and other markets

The MSCI Emerging Markets Index ended the week down -4.1% (9.1% YTD). India and China contributed positively, while Taiwan and South Korea weighed heavily on performance.

The CSI 300 Index, the main onshore benchmark, rose 1.7% (-10.6% YTD), while the Shanghai Composite Index gained 1.4% (-6.1% YTD). Hong Kong’s benchmark Hang Seng Index rallied 5.1% (-1.7% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, climbed 5.3% (-12.9% YTD).

Chinese equities rebounded, recovering some of October’s losses amid Beijing’s latest market-support measures. Semiconductor and other AI-related shares led a strong midweek recovery on the mainland, while Hong Kong internet stocks rallied on Thursday as investors returned to shares heavily sold off in October. The recovery lost momentum on Friday after the sharp decline in US technology shares, with semiconductor and optical communications stocks among the main laggards, although Chinese equities held on to their weekly gains.

In South Korea, the KOSPI Index fell -11.7% (21.6% YTD) as the global sell-off in AI and semiconductor stocks hit major chipmakers Samsung Electronics and SK Hynix, amid concerns that US midterm results could bring tighter scrutiny of data centre development, adding to the pressure. On Friday, the KOSPI briefly fell below 5,000, triggering a temporary trading halt, and regulators temporarily eased margin-lending collateral requirements to limit forced selling. The economic data remained solid: the current account surplus reached a record in September, driven by strong demand for advanced memory chips, while October inflation eased to 2.8% YoY from 2.9%, and core inflation remained elevated at 2.8%. The equity sell-off and uncertainty over the AI investment outlook could complicate the Bank of Korea’s decision at its 26 November meeting.

Fixed income markets

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.6% (0.8% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.3% (1.1% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.3% (-0.7% YTD).

US Treasury yields fell across the curve, with shorter maturities down slightly more than longer ones. Markets interpreted the Democratic sweep as lowering the likelihood of significant fiscal expansion, and the technology-led equity sell-off boosted safe-haven demand. Stronger-than-expected payroll growth and hawkish Fed commentary late in the week tempered the rally.

Over the week, the 10-year Treasury yield decreased by -7bps to 4.86% from 4.93% (up 69bps YTD). The 2-year Treasury yield decreased by -8bps, ending the week at 4.51% from 4.59% (up 104bps YTD).

Over the week, the 10-year German Bund yield declined by -7bps to 3.25% from 3.32% (up 40bps YTD). The 10-year UK gilt yield decreased by -13bps to 5.15% from 5.28% (up 68bps YTD).