$50 trillion! This is the record amount that the S&P 500 market capitalization has just reached. Despite tensions in the Middle East, political uncertainty a few weeks before the presidential elections, and the expected slowdown in the American economy, the performance of the flagship American index since the beginning of the year is now close to +22% and it is even +40% (!) if we look at the performance of the index since the low point of October 2023. This performance is simply exceptional. It is even the best YTD performance since 1996, even though the VIX, which is nevertheless called the fear index, has increased sharply recently. While the current level of the VIX is biased in the short term by the uncertainty of the American elections, it remains that such a level on the volatility index while the S&P 500 is at a record level is something quite rare (see chart of the week). The economic data published across the Atlantic last week did not help to see things more clearly and even added uncertainty about the Fed's next decision. On the one hand, the inflation figures for September were published above expectations, which had not happened for 6 months. Overall inflation nevertheless continues to decline, although less than expected, to 2.4% (compared to 2.5% in August), a low of more than three and a half years. The disappointment with these figures comes from the "hard core" with core inflation which has started to rise slightly to 3.3% (compared to 3.2% expected by the consensus, in line with the previous month). Tensions come from both one-off phenomena (price increases in healthcare, airline tickets or clothing) and persistent inflationary pockets such as car insurance and, naturally, rents. The latter, although slowing down over the month, still show an annual variation close to +5%.
However, these figures ultimately caused little reaction from the financial markets, which had already revised upwards their expectations of rate cuts following the latest employment report. These figures should not change the Fed's vision either, which is increasingly confident in the disinflation movement and which knows that the data can experience volatile points. On the other hand, and while the Fed is now more focused on the job market, new unemployment benefit applications largely exceeded expectations at 258k (against 230k expected by the consensus) for the week of October 5, the largest increase in 14 months. These figures should nevertheless be qualified because they were impacted by Hurricane Helene and the strike at Boeing.
On the Eurozone side, while the minutes of the last ECB meeting unsurprisingly state that the approach is still "data dependent", the members of the institution nevertheless seem increasingly concerned about growth prospects. Accelerating the rate cuts in the event of unfavourable economic statistics is therefore a possibility that has been raised. Response will begin on Thursday.
