Nerves are setting in. After enjoying three years of strong growth, investors are on high alert for signs of trouble in the stock market – and they spotted some last week. Equities wobbled on Thursday and Friday, first in the US and then in Europe, and ‘safe haven’ assets climbed.
It is tempting to point the finger at Big Tech, given all the speculation about an AI   bubble. On this occasion, however, blame lay far beyond Silicon Valley, in the rather   less glamorous world of subprime lending.
In September, the US car finance firm Tricolor went bankrupt. Shortly afterwards, First   Brands – an American company that sells car parts like antifreeze and wiper blades – also collapsed. This sparked concern about America’s regional banks. Have lenders been doing proper due diligence? And are there systemic issues in the private credit market?
A couple more ‘cockroaches’ – as described by JP Morgan chief Jamie Dimon – emerged last week, and this made investors jumpy. The VIX index, which measures stock market volatility, is elevated after an uneventful summer.
Earnings season gathers momentum
This week is off to a calmer start, and attention is shifting towards company results. America’s biggest investment banks kicked off reporting season with double-digit growth, and now it’s time for everyone else.
The Magnificent 7 will enter the fray on Wednesday, with Tesla set to publish its third quarter figures after market close. Alphabet, Amazon, Apple, Meta and Microsoft are all due to publish their numbers the following week.
There is plenty of optimism around. S&P 500 companies are expected to report earnings growth of 8.5% for the third quarter and – so far – most businesses have beaten consensus forecasts.
Incoming inflation update
Closer to home, UK inflation figures are out this Wednesday. Inflation is expected to have hit a ‘temporary peak’ of 4% in September, up from 3.8% in August. Assuming the forecasts are correct, this is an important moment for cash savers, as interest rates and inflation will be neck and neck for the first time in two years. This is bad news for real returns.
The US is also due to publish September inflation figures this week. However, the US federal government shutdown – which started on 1 October after the Republicans and Democrats failed to resolve a budget dispute – has seriously disrupted the country’s economic releases. The data was originally due on 15 October but was postponed.
Analysts at Lloyds expect America’s ‘core’ inflation to hold steady at 3.1%, paving the  Â
way for another quarter-point interest rate cut this month.
What happens after that is less clear. There is a big question mark about when October’s inflation figures will emerge, given the Bureau of Labor Statistics hasn’t been able to collect new price information since the government shut down. The monthly reports are one of the main ways policymakers, investors and business leaders track inflation trends – and the delay comes at a crucial time for US interest rates and tariffs. ‘It will jeopardize the Fed’s ability to get a clear line of sight into how tariffs are impacting consumer prices at a time when both sides of the Fed’s mandate are increasingly in tension,’ analysts at Canadian bank RBC concluded.
Going for gold
Uncertainty is everywhere, it seems. Not everyone is complaining, however. Gold continues its extraordinary rally, having reached 48 all-time highs this year.Geopolitical tensions, a weak US dollar, worries about inflation, and rising debt levels have all pushed central banks and investors towards this ‘safe haven’ asset – and, for now, the precious metal shows no sign of slowing down.