Nasdaq posts its worst weekly decline since June, gold rebounds but faces resistance at 4200

The Nasdaq fell 4.5% this week, posting its worst weekly performance since June; gold briefly neared $4,000 before rebounding to around $4,200 and encountering resistance again. Next week, the Fed’s collective silence, earnings reports from tech giants, and the Middle East situation converge, presenting a new test for both U.S. stocks and gold.

This week, Wall Street began to waver, reassessing the seemingly unshakeable performance of the U.S. economy. On Friday, technology stocks faced broad selling pressure, capping off a weak week for markets. The Nasdaq Composite fell 4.5% for the week, recording its worst weekly performance since June; the S&P 500 dropped 1.1% on Friday, ending the week down 1.9%. The Dow Jones Industrial Average, with relatively lower exposure to tech stocks, slipped 0.3% on Friday but still rose 0.7% for the week.

Running through this series of market volatility is growing investor concern that rising U.S. borrowing costs could slow the historic investments in artificial intelligence infrastructure, which have become a key driver of economic growth.

These concerns also prompted a shift of capital back into U.S. Treasuries, ending a previous wave of heavy bond selling. During that selling pressure, U.S. Treasury yields rose to their highest levels in over two decades. As bonds rebounded, the 10-year U.S. Treasury yield fell by 0.146 percentage points to 5.097%, marking its largest weekly decline since mid-February.

U.S. inflation pressures have reignited, causing gold to experience significant volatility this week. A stronger dollar and rising U.S. Treasury yields pushed gold prices into a consecutive decline, briefly nearing the $4,000 mark. As U.S. Treasury yields retreated from their highs and the dollar weakened, gold recovered most of its weekly losses. However, after rebounding to around $4,200, gold encountered resistance once again.

Brent crude futures touched $110 per barrel for the first time since May, as the prospect of imminent supply relief weakened, prompting traders to increase bets on further price gains ahead of the weekend.

Analysts warn that the escalating Middle East crisis is casting a shadow over the oil market. Over the past week, Iran has increased attacks on vessels in the Strait of Hormuz, while the Houthis have intensified strikes against Saudi Arabia, including a missile attack on the headquarters of Saudi Aramco.

Here are the key points the market will focus on this week (all times in Beijing Time):

At 12:15 on Tuesday, European Central Bank Chief Economist Lane delivered a speech in Shanghai.

At 16:00 on Wednesday, Executive Board member Chiropone of the European Central Bank will speak.

Wednesday at 21:00, Bank of England Governor Bailey will deliver a speech.

At 00:00 on Thursday, ECB President Lagarde will speak.

On Thursday at 17:30, ECB Governing Council member Koecher will speak.

At 22:00 on Thursday, ECB Governing Council member Panetta will speak.

On Thursday, the Bank of Korea announced its interest rate decision.

The Federal Reserve has entered the blackout period ahead of its interest rate meeting on October 27–28.

Although investors generally expect the Federal Reserve to continue raising interest rates to curb inflation, AI infrastructure investment continues to drive economic growth, and this investment cycle has so far shown little sign of being significantly impacted by rising borrowing costs. To substantially slow economic growth, the Federal Reserve may need to raise rates further.

Investors still expect the Fed to raise interest rates before the end of this year, even if no action is taken this month, as further hikes could follow soon. This week’s inflation data, which came in higher than expected, has further reinforced market expectations of a rate hike.

On Friday morning in Bangkok, Federal Reserve Chairman Kevin Warsh revealed little specific information about interest rate policy. Prior to this, other Fed officials had signaled a pause in rate hikes, leading investors to believe the Fed may hold rates steady at its meeting on October 27–28.

However, the interest rate futures market still indicates that traders expect an approximately 85% probability of the Fed raising rates again before the end of 2026. This bet suggests that, even if the October meeting holds rates steady, the market still views a subsequent rate hike as highly likely.

Bank of America strategist Michael Hartnett expects risk-off sentiment to remain dominant over the next three to four weeks. Rising interest rates, political risks from the U.S. midterm elections, and volatility from AI-driven trading are becoming key pressures for investors to navigate.

Hartnett stated in the report that the "extreme optimism" since summer has ended. Global bonds have faced widespread selling, with real yields adjusted for inflation rising to 3%, while rising energy prices and persistent inflation have further heightened market concerns.

He wrote: "Given that the real yield has reached 3%, we remain inclined toward a risk-off stance over the next three to four weeks."

Political risk is also a key focus for Harnett. He believes that the pressure on the Republican Party in the November U.S. midterm elections is increasing, and the likelihood of the Democratic Party achieving a significant victory through a similar "wave sweep" is rising.

On monetary policy, Hartnett expects the Federal Reserve to raise interest rates in October. He believes that, after more than five consecutive years of inflation above the Fed’s target, the central bank needs to restore its credibility by further tightening policy. This view is more hawkish than the market’s prevailing expectation.

Tuesday at 14:00: UK 3-month ILO unemployment rate, UK unemployment rate for September, UK jobseeker’s allowance claims for September

Tuesday at 17:00, Germany/Eurozone ZEW Economic Sentiment Index for October

Wednesday, 14:00: UK Monthly CPI, UK Public Sector Net Borrowing for September, UK Monthly Retail Prices Index

Thursday at 22:00: Preliminary Eurozone October Consumer Sentiment Index, U.S. September Conference Board Leading Indicator Monthly Rate

Friday, 07:30, Japan's Year-over-Year Core CPI for September

Friday at 14:00, UK monthly retail sales data, seasonally adjusted, for September

Friday, 15:15–16:00, Flash Manufacturing PMI for France, Germany, and the Eurozone in October

Friday at 16:30, UK preliminary PMI for manufacturing and services in October

Friday at 20:30, Canada's Monthly Retail Sales for August

Friday, 21:45, US S&P Global Manufacturing/Services PMI Preliminary for October

Friday at 22:00, the final reading of the University of Michigan Consumer Sentiment Index for October and the final reading of the U.S. one-year inflation expectation for October.

Over the coming week, the U.S. economic data calendar is relatively light. Markets will focus on housing market indicators, weekly initial jobless claims, and the PMI and consumer confidence data scheduled for Friday.

Kitco News’ weekly gold survey shows a clear divide among Wall Street analysts regarding next week’s gold price direction, while retail investors are more bearish in sentiment.

Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, expects gold to remain range-bound in the short term. He believes that with gold currently trading around $4,200 and relatively limited economic data next week, market attention may shift toward corporate earnings reports.

Adrian Day, President of Adrian Day Asset Management, also expects gold prices to remain range-bound for now. He noted that gold has shown some resilience despite high U.S. Treasury yields, a relatively strong dollar, and elevated oil prices.

Dai believes that gold has strong support below, but a true breakout still requires a catalyst. He specifically noted that the end of the war could weaken the dollar and lower oil prices, thereby easing inflationary pressures and reducing market expectations of rate hikes, creating conditions for gold to break out of its range.

James Stanley, Senior Market Strategist at Forex.com, maintains a bullish stance. He believes that gold performed strongly in the second half of the week; although technical patterns suggest the market may continue to digest prior gains, the bullish outlook remains valid as long as the $4,000 per ounce level for spot gold is not decisively broken below.

StoneX Bullion market analyst Fawad Razaqzada is more cautious about the short-term outlook. He noted that a weaker dollar and declining U.S. Treasury yields have indeed eased pressure on gold, but Thursday’s rebound is not yet sufficient to confirm that the correction has ended.

Lazarakzada believes gold has been struggling to hold support near $4,100, with clear resistance above. He is unwilling to turn bullish until gold breaks through this resistance zone. However, he remains optimistic about gold’s long-term outlook, particularly for silver.

Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, stated that gold is not only influenced by inflation data but is also highly sensitive to changes in expectations for real yields. He advised monitoring the near-term support level around $4,154 and the immediate resistance at $4,179, while keeping an eye on U.S. Treasury yields, the dollar, and central bank policy signals.

Aslam believes that if real yields continue to decline, institutional investors may increase their gold allocations; however, if market expectations reassert a tightening of monetary policy, gold prices could enter a consolidation phase. Inflation uncertainty, geopolitical safe-haven demand, and monetary policy expectations will collectively influence gold’s trajectory for the remainder of 2026.

In contrast to the above view, Adam Button, Head of Forex Strategy at investingLive, is bearish on gold. He believes that the market may be pricing in too many rate hikes, and the issues reflected in this week’s inflation data cannot be ignored—however, market attention has been distracted by concerns over AI-related debt risks.

Daniel Pavilonis, Senior Commodities Broker at StoneX Group, believes that gold remains a traded asset with an inverse relationship to 10-year U.S. Treasury yields, and that changes in yields will continue to influence the direction of gold buying and selling.

Regarding the outlook, he believes that if the long end of the yield curve declines due to economic uncertainty, it will benefit precious metals. If the 10-year U.S. Treasury yield falls below 5%, gold could receive stronger support.

However, Pavilonis also warned that gold could still face significant downside risk if interest rates rise further sharply. He suggested that if yields rise to 8%, gold prices could fall to $3,500, while silver could drop below $40. This is his assessment of an extreme interest rate scenario, not a baseline forecast.

He also noted that gold has not continued to rise during the Iran conflict, as some investors had anticipated. Rising energy prices have fueled inflation, but precious metals may not effectively hedge against all inflationary pressures. Current interest rates, geopolitical conditions, and market drivers have all changed compared to the same period last year.

In summary, at present, gold’s short-term direction still depends on several key variables: whether $4,000 can be held, whether $4,200 can be effectively broken through, whether U.S. Treasury yields will continue to decline, and whether there will be any substantive developments in the Middle East. Wall Street analysts have not yet reached a consensus, and retail investors are slightly more bearish. Until new catalysts emerge, gold may continue to oscillate between these key levels.

The U.S. third-quarter earnings season has just begun, with corporate profits temporarily exceeding expectations, but internal divergences within the U.S. stock market, along with risks related to interest rates, AI investments, and fiscal deficits, are eroding investor confidence.

Next week, approximately 70 S&P 500 companies will release their earnings reports. Key stocks such as Tesla (TSLA.O), Meta Platforms (META.O), Western Digital (WDC.O), and AT&T (T.N) will report, providing new insights into consumer demand, technology investment, and corporate profitability. In the Hong Kong market, China Telecom (00728.HK), China Unicom (00762.HK), and CATL (03750.HK) will also announce their earnings.

As of Friday, 85% of the 46 S&P 500 companies that have reported earnings have exceeded market expectations. Based on current data, the estimated year-over-year earnings growth rate for the S&P 500 in the third quarter is 29%, and this figure could still rise as more companies release their results.

Strong earnings data provided fundamental support for U.S. equities, but the rally did not broadly extend across the market. Currently, major indices are increasingly reliant on a few large technology companies, while broader stocks and small-cap stocks remain relatively weak. On Wednesday this week, the small-cap index also entered a technical correction zone.

Bob Lang, Chief Options Analyst at Explosive Options, said: "This kind of market environment, where some stocks are rising while others are falling, is not a truly healthy market condition."

The structure of corporate profit growth is also worth noting. Data released this week by Bank of America shows that the energy and technology sectors were key drivers of this round of profit growth. Excluding these two sectors, the third-quarter profit growth rate for the remaining S&P 500 constituents is expected to decline from 12% in the second quarter to 7%.

This means that even if the overall index remains strongly profitable, growth momentum in other industries may be weakening. As earnings season progresses, investors will increasingly focus on whether profit growth can spread from a few industries to a broader range of companies.

Changes in the artificial intelligence investment cycle represent another risk of market concern. If spending on AI infrastructure—previously a key driver of technology stock gains—begins to slow, it could alter the relative performance of different sectors and impact revenue and profit expectations for related companies.

VanEck’s Semiconductor ETF (SMH) fell for its ninth consecutive trading day on Friday, setting a record for the longest consecutive losing streak since the fund’s inception in 2006. This performance reflects mounting pressure on the semiconductor sector and has intensified investor focus on whether AI-related investments can continue to support tech stock valuations.

The interest rate environment remains a key factor suppressing market sentiment. This risk is of particular concern for U.S. stocks, which currently have high valuations and strong earnings expectations.

This week, renowned hedge fund manager Paul Tudor Jones warned that 2027 could be an extremely challenging year for the stock market. He noted that upcoming IPOs from major tech companies could increase stock supply, while the growing U.S. fiscal deficit will also be a challenge for the market to confront.

This week marks the fourth anniversary of the U.S. stock market's current bull run. Historically, this phase does not necessarily signal the end of the rally, but further gains may become more modest. The current market challenge lies in whether companies can continue delivering strong earnings and whether those earnings can offset the pressures from high interest rates and shifting prospects for AI investments.

Bob believes that concerns over interest rates, AI spending, and the sustainability of earnings could put about a 5% downward pressure on the S&P 500 by the end of the year. He noted, “Corporate revenues and earnings cannot sustain such strong growth indefinitely. We cannot achieve 20% to 30% growth every single quarter going forward. Eventually, the pace of growth will slow down.”

He also stated, "If the cost of capital remains high or continues to rise, it will eventually have a negative impact on other areas of the economy."

Next week’s earnings reports will test whether corporate profits can continue to support U.S. stock valuations. The performance of Tesla, Meta, and semiconductor companies will provide investors with additional insights. However, as market gains become increasingly concentrated and interest rate risks persist, even continued earnings beats may not be enough to alleviate year-end market correction pressures.

AI trading has long been a key driver of the U.S. stock market's rise. The Bank of America team, citing data from EPFR Global, noted that technology funds have consistently attracted capital inflows, with annualized inflows into U.S. equity funds projected to reach a record $196 billion by 2026.

In response to changing market conditions, Hartnett of Bank of America recommends investors shift toward assets that may benefit from interest rates peaking. He favors small-cap stocks, real estate investment trusts (REITs), and the consumer discretionary sector, aiming to adjust sector allocations to navigate shifts in interest rates and market sentiment.

Regarding tech stocks, his position is very clear: "We will not increase our holdings in tech stocks."

On Monday, October 19, in observance of the Double Ninth Festival, the Hong Kong stock market will be closed for one day, and both Southbound and Northbound trading will be suspended.

On Tuesday, October 20, Vijayadashami, the National Stock Exchange of India will be closed for one day.