The U.S. equity markets ticked higher on Friday despite a stronger-than-expected jobs report. But it was down for the week that ended on November 4, 2022, after the Federal Reserve increased interest rates for the sixth time this year. Treasury yields are at their highest levels since 2008.

In the last week, the Dow Jones index fell 1.4%, while the S&ampP 500 index and the Nasdaq Composite index were down by 3.3% and 5.6%, respectively.

The 10-year Treasury yield stood at 4.2% while the two-year yield was higher at 4.7%, indicating the inversion of the yield curve has deepened. Crude oil prices rose and the West Texas Intermediate (WTI) crude priced at more than $92/barrel on Friday, the highest level since August, on the news that China could ease pandemic restrictions.

Around 80% of the companies part of the S&ampP 500 have already reported Q3 earnings, so the earnings season will cool off in the upcoming week. However, heavyweights, including The Walt Disney Company (NYSE: DIS), Activision Blizzard (NASDAQ: ATVI), and Dupont (NYSE: DD), are scheduled to report Q3 earnings in the next few days.

 

Will tech sell-offs accelerate?

Big tech companies are under pressure. After more than a decade of marginal interest rates, these companies are wrestling with higher debt costs and red-hot inflation in 2022, which is impacting both revenue and profit margins.

Amazon (NASDAQ: AMZN) disclosed it would pause hiring while Lyft (NASDAQ: LYFT) reduced its employee count by 13%, and its estimated Twitter just fired 50% of its total employees. Meta (NASDAQ: META) is also looking to lower costs across various business segments, as it reported two consecutive quarters of revenue decline in Q3.

Fintech start-up Stripe, which was valued at $95 billion last March, announced it would lower its workforce by 14%, and this trend is likely to continue in the near term.

Soon after COVID-19 reared its ugly head, e-commerce and fintech companies experienced a massive uptick in sales as several retailers moved online, accelerating the demand for payments processing and web development services. Companies and management overestimated the shift towards online and expanded their employee base significantly.

But an extremely challenging macro-environment has meant operating costs have surged amid a slowdown in sales. The management at Shopify (NYSE: SHOP) and Stripe have stated they were too optimistic about top-line growth and “overhired for the world we’re in.”

 

All eyes on inflation and consumer spending

Right now, the Federal Reserve is willing to risk the possibility of a recession to tame inflation. In fact, the better-than-expected jobs report on Friday was frowned upon as the labor market added 261,000 jobs in October, compared to estimates of less than 210,000 job additions.

The Fed has emphasized interest rates will remain elevated if inflation is not brought under control, indicating further hikes are on the cards.

The Bureau Labor of Statistics will release its CPI (consumer price index) report for October on Thursday. Economists expect prices to rise 8% year over year, a tad lower than the 8.2% gain in September. Core inflation which excludes food and fuel costs, is expected to rise by 6.7%, higher than the 6.6% figure for September. Any deviation from these figures could trigger another round of sell-offs on the equity markets.

Consumer sentiment touched an all-time low of 50 in June as the macro environment remains uncertain. The University of Michigan will release data for the Consumer Sentiment Index on Friday, which is expected to touch 60, just higher than last monthU+02019s reading of 59.9.

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