Last Week in Markets
US equities fell last week as concerns around AI continued, while Australian equities finished broadly flat.
The S&P 500 fell close to 0.5% last week, dragged lower by communication services and information technology. Despite investors initially returning to tech early in the week, concerns around AI-related debt, revenues and returns continued to weigh on sentiment. Sentiment was further pressured by Meta's Q3 earnings, with shares falling 7%1 despite revenue beating expectations, as investors likely focused on negative free cash flow and the issuance of non-voting stock.2 As oil prices rose and tech weakened, investors sought safety in US Treasuries, pushing the 10-year yield below 5%. The same caution drove a broadening away from tech towards more defensive sectors, with health care, real estate, utilities and financials outperforming. This rotation also lifted market breadth, with around 60% of S&P 500 stocks above their 200-day moving average, up from 40% a few weeks earlier.3 Underpinning this, earnings have remained resilient, with 83% of reporting companies so far beating EPS estimates according to FactSet, above the 5-year average of 78%.4
The S&P/ASX 200 finished broadly flat last week as 8 of 11 sectors finished higher, led by communication services and financials, offsetting weakness in information technology and Materials. Tech weakness was largely concentrated in NEXTDC, which fell over 40% after materially downgrading its FY27 guidance on power-supply delays at its M3 Melbourne data centre. Amid recent AI concerns, Australia's relatively low participation in the AI boom, long seen as one of its biggest weaknesses, is quickly becoming one of its greatest assets in the sell-off. This was evident last week, with the ASX outperforming key APAC markets including Korea, Japan and Hong Kong.5 Investors also heard from RBA Deputy Governor Andrew Hauser, who warned the inflation outlook has deteriorated materially, with oil prices a third higher than assumed in the August projections. He also noted the fastest-rising CPI components are those most closely tied to capacity pressures, such as market services. The market-implied probability of a November hike subsequently rose to nearly 54%, from around 30% earlier in the week.6
The Week Ahead
In Australia, RBA Governor Michele Bullock is scheduled to appear at a Senate hearing today. September quarter CPI data will also be released, a key input ahead of the RBA's Melbourne Cup Day rate decision.
In the US, the Federal Reserve will announce its rate decision overnight, with markets expecting rates to be held at 3.75-4.00%, while US GDP data will also be released later in the week.
In the World of Commodities:
Brent Crude: Brent crude rose to near US$117 a barrel last week as Middle East supply risks intensified. Prices were initially supported by Houthi claims of strikes on Saudi energy infrastructure and airports7, before gaining further momentum on Thursday amid fears of escalation, with the U.S. reportedly preparing to resume strikes on Iran. 8
Gold: (GOLD) fell below US$4,000 last week amid the tech sell-off and ongoing geopolitical unrest. The decline likely reflected a liquidity-driven sell-off, with investors selling gold to raise cash and cover losses elsewhere
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