SoFi Blog

Interest rates continued to rise last week driven largely by an expected increase in inflation. Third quarter GDP data showed faster growth than expected, but a deeper look suggests caution against overestimating the importance of these numbers. Subpar earnings from several large tech companies and renewed uncertainty surrounding the election put pressure on U.S. equities and offset the good economic news. Falling oil prices and a stronger dollar hurt emerging market returns.

It was a relatively uneventful week as Fed Chair Janet Yellen and Fed Vice Chair Stanley Fischer continued to reiterate the need for a gradual path of rate hikes. Inflation data came roughly in-line with forecasts, which kept ten-year inflation expectations at their highest level since the end of April. Equity and oil prices were up moderately while the euro depreciated against both the dollar and yen.

Stock prices fell last week in the face of rising interest rates and mixed economic data. The 10-year Treasury yield reached its highest level since early June as the market-derived probability of a Fed hike in December rose. Rising yields pushed the dollar higher against most other currencies, hurting returns in international and emerging market equities. We see bond yields leveling out in the coming weeks and remain constructive on U.S. growth.

Data this week confirmed that the slowdown in the US economic growth seen in August was a temporary one. Market-derived probabilities of a Fed rate hike by December continued to rise along with a stronger dollar and higher 10-year Treasury yields. Oil continued to climb as U.S. oil inventories fell and the prospects for an OPEC agreement remained intact. The rising price of oil caused emerging markets (many of which export oil) to outperform.

The final week of the quarter was an exciting one. Continued troubles with European banks led to volatile stock markets (more on this next week). Oil prices were sent sharply higher after a productive meeting among member countries of the Organization of Petroleum Exporting Countries (OPEC). Inflation data out of the United States continues to move towards the Fed’s target, but came in at expected levels leading to little change in the 10-year Treasury yield.