U.S. equities ended the week on a mixed note, reflecting shifting investor sentiment as the country concluded the longest federal government shutdown in history.
The S&P 500 and Dow Jones Industrial Average posted modest gains, while the Nasdaq Composite, MidCap 400, and Russell 2000 moved lower.
Trading was uneven throughout the week as investors reassessed the high valuations of major technology and artificial intelligence-related companies – sectors that have contributed significantly to recent market highs.
A volatile Friday session, with few major headlines, allowed some indices to recover earlier losses.
The reopening of the federal government removed a major source of uncertainty, but concerns linger about how long it will take for economic activity and public services to normalize. Data releases remained a central focus, with the Bureau of Labor Statistics noting that delays in jobs and inflation reports could continue. A release date for the September jobs report was eventually confirmed for November 20.
Interest-rate expectations also shifted. Several Federal Reserve officials delivered cautious, hawkish remarks suggesting that current monetary policy should remain restrictive until inflation trends convincingly toward the 2% target. As a result, the probability of a December rate cut fell sharply, pressuring small-cap stocks and contributing to weakness in broader market sentiment. Treasury yields moved slightly higher, while municipal bonds outperformed amid strong demand.
Europe
European markets ended the week higher, supported in part by relief that the U.S. government reopened and removed a significant global risk factor. The STOXX Europe 600 Index rose 1.77%, with Germany’s DAX, France’s CAC 40, and Italy’s FTSE MIB all recording strong gains. However, cooling sentiment toward artificial intelligence tempered enthusiasm, particularly within tech-linked sectors. The UK’s FTSE 100 remained broadly flat.
In the United Kingdom, economic indicators painted a weaker picture. Unemployment rose to 5%, its highest level since early 2021, while wage growth slowed, suggesting that the labor market is losing momentum. GDP growth for the third quarter came in at 0.1%, missing expectations, and economic output for September declined slightly. A significant fall in car production, largely due to a cyberattack at Jaguar Land Rover, contributed to the slowdown. These data points increased expectations that the Bank of England could cut interest rates as early as December.
Across the eurozone, industrial production remained subdued. September’s output rose only 0.2%, well below market forecasts – after a sharp decline in August. Investor sentiment in Germany weakened more than expected, with concerns growing about the country’s economic direction and its ability to address structural issues. These challenges continue to shape expectations for Europe’s economic performance over the coming months.
Asia: Japan and China
Across Asia, markets experienced a mixed week. In Japan, stocks advanced modestly, supported by broader global market stability following the end of the U.S. government shutdown. The Nikkei 225 added 0.20% while the TOPIX Index gained 1.85%. However, concerns over inflated valuations in AI-linked companies also spilled into Japanese markets, weighing on the technology sector.
The Japanese yen weakened further, reaching the mid-154 range against the U.S. dollar, as investors anticipated continued loose fiscal policy under newly appointed Prime Minister Sanae Takaichi. Her administration is expected to favour flexible, pro-growth spending and a cautious approach to tightening monetary policy. This contributed to a pickup in expectations that the Bank of Japan may delay any rate hike until January. Market confidence received a boost from the monthly Reuters Tankan survey, which showed the strongest manufacturer sentiment in nearly four years, supported by a weaker yen that benefits exporters.
In China, markets pulled back as investors locked in gains from the previous week’s rally. Economic data highlighted a loss of momentum: industrial production and retail sales both slowed, while fixed asset investment recorded its steepest 10-month decline on record. The property sector continued to drag on overall growth, with both new and existing home prices falling. Despite the softer data, economists still expect China to meet its growth goal of around 5%, supported by recent fiscal stimulus and a temporary trade truce with the U.S.
Looking ahead
Overall, markets appear set to navigate the weeks ahead with a careful balance of caution and optimism as investors assess shifting economic signals and policy expectations. Ultimately, the evolving economic backdrop will guide market sentiment as investors look toward the final stretch of the year.
