Weekly market commentary

Market review

Global equity markets declined over the week, weighed down by concerns over the US labour market and growing investor unease that the rally in artificial intelligence (AI) stocks may have run too far. The week also saw the release of business activity PMI data for the US in October and the latest Bank of England (BOE) interest rate decision.

The ongoing US government shutdown meant key labour data, like initial unemployment claims and nonfarm payrolls, weren’t released. Instead, investors have focused their attention on private labour data points to gauge the health of the US labour market. The ADP report was positive and showed US private businesses added 42,000 jobs in October which was above forecasts of 25,000. However, investors focused more closely at the Challenger job cuts report which showed employers cut 153,074 jobs in October, the highest for the month since 2003.

Along with the large job cuts from the Challenger report, investors became concerned this week about AI valuations. The shift in AI sentiment can be seen from Palantir – a company that powers AI-driven decisions – whose stock price fell 6.74% on Tuesday even though the company raised their revenue outlook. The stock price had quadrupled in the last year so expectations were very high. This coincided with a broader decline in technology stocks, as investors questioned the valuations of some AI companies.

We also saw mixed PMI data in the US. ISM US manufacturing PMI came in at 48.7 which was below expectations - any reading below 50 signals a contraction – and is the eight consecutive month of contraction. Meanwhile ISM US Services PMI came in at 52.4 and above expectations of a 50.8 print, showing the strongest expansion in the services sector since February.

The BOE decided to keep UK interest rates unchanged at 4%. The Committee voted 5-4 in favour of keeping rates unchanged versus a 0.25% cut. Markets had expected a 6-3 vote, so the higher-thananticipated support for a rate cut led to a fall in gilt yields and a rise in prices on the day. All eyes will now be on the upcoming UK budget on the 26 November, particularly after Rachel Reeves, the Chancellor of the Exchequer, refused to rule out tax hikes in a speech this week. 

Outlook

Whilst markets remain reactive to a mix of economic and geopolitical signals, investors seem largely undeterred and continue to buy into short term softness. As we continue through Q3 earnings season, results broadly suggest that demand from consumers and businesses remains robust. As inflation trends diverge and labour markets evolve, central banks may take increasingly different paths - raising the potential for greater dispersion across asset classes and regions in the period ahead.

Movers table