Stocks continued their strong November rally this week, as hopes grew that inflation has peaked and the Fed is nearing the end of its rate hiking cycle. The S&P 500 rose 1.9% on Tuesday following the cooler than expected US CPI print, bringing its gains for the month so far to 7%. The tech-heavy Nasdaq also jumped 2.4% and is now up nearly 10% in November. Declining bond yields have supported equity markets, with the 10-year Treasury yield falling to 4.44% this week.

However, some post-earnings sell-offs tempered enthusiasm on Thursday. Disappointing results from Walmart and Cisco dragged down the Dow, while the S&P 500 and Nasdaq eked out minor gains. Energy stocks were also weak as oil prices tumbled over 5% on demand concerns and rising inventories.

Signs that inflation might be moderating faster in the US than in Australia sent the Australian dollar 2% higher mid-week and later in the week a surprisingly strong October jobs number may have cemented this view.  Later in the week, falling iron ore prices amid new Chinese regulatory scrutiny weighed on the iron ore price and the Australian dollar to some extent.

That left Australian equities up 1.5% so far this week after broad-based gains across most sectors. Resource stocks and some of our national healthcare champions, ResMed, CSL, and Cochlear, as well as Ramsay, led the way. International equities were up 0.4% in Australian Dollar terms when hedged. The US S&P 500 gained 2.2%, supported by gains in large tech stocks like Apple, Microsoft, Nvidia, and Tesla. European stocks were also higher, with the Euro Stoxx 50 up 2.5%. Asian markets were mixed with Japan up but China slightly lower. Latin American equities and global smaller companies provided the strongest gains in this latest risk on episode, all up by around 5% for the week.  

Real estate stocks also performed strongly as interest rate expectations were tempered. Australian REITs were up 4.4%, and global REITs gained 3.5% in hedged AUD terms. Listed infrastructure stocks were also higher, up 2.6%. Bond yields were down slightly, resulting in modest positive returns across most fixed income segments. Commodity prices were mixed, with gold up 2.4% in AUD terms but the broader commodities index was down 1.9%, and oil prices dropped over 5%.

In summary, it was a risk-on week for markets with solid gains in global equities and listed real assets, while defensive fixed income asset classes saw smaller rises. For now, it appears that slightly bad news on the earnings front is good news for most things as it indicates less upwards pressure on rates, while a potential recession now feels like something to worry about next year.