Trading action this week highlighted just how finely balanced markets remain, with strong underlying economic momentum colliding with policy risk, interest rate volatility, and fast-moving geopolitical headlines. U.S. equities had steadied once again near record territory. The S&P 500 (SPX) remains below the psychologically important 7,000 level, while both the Dow Jones Industrial Average ($DJI) and the Dow Jones Transportation Average ($DJT) pushed to or near new highs. That tandem strength in the Dow averages carries symbolic weight, often interpreted as confirmation that economic activity and demand expectations remain intact despite near-term turbulence.

This week’s economic data supported that interpretation. The updated 3Q GDP reading showed the U.S. economy expanding at an annualized 4.4% quarter over quarter, slightly above expectations of 4.3%. While markets recognize that growth has slowed since then, the strength of the 3Q print reinforced the idea that the economy entered late 2025 with considerable momentum. The resilience in output has helped cushion markets against fears that higher rates or tighter financial conditions will abruptly derail growth.

Inflation data also landed this week and kept the broader disinflation narrative intact. The PCE Price Index, the Federal Reserve’s preferred inflation gauge, showed headline PCE running at 2.8% year over year, with core PCE also at 2.8%. Monthly gains were modest and broadly in line with expectations. Together with the strong 3Q GDP figure, the data painted a picture of an economy that is gradually improving in terms of inflation and growth, giving the Fed room to remain patient while monitoring risks.

That patience was tested midweek by geopolitics. Comments from Donald Trump about potential new tariffs on European goods tied to Greenland negotiations sparked renewed inflation concerns and rattled rates markets. The 10-year Treasury yield spiked sharply on Tuesday, while shorter-dated yields moved far less, producing a clear bear steepening of the yield curve between the 10-year and the 3-month maturities. Equities sold off sharply to start the week, reflecting fears that tariff-driven price pressures could complicate the inflation outlook just as disinflation appeared to be settling in.

Sector performance mirrored that rate shock. Utilities, real estate, and financials were the weakest groups in the S&P 500 for the week. Utilities and real estate struggled under higher long-term yields, while financials lagged amid concerns that inflation-led steepening is less supportive than a growth-led move. In contrast, energy, materials, and healthcare outperformed. Energy stocks benefited from firmer crude prices and geopolitical risk premiums, materials were supported by renewed strength in metals and infrastructure-related demand, and healthcare attracted defensive inflows tied to earnings stability.

By midweek, the tone shifted again. Reports of reconciliation and de-escalation between the U.S. and the European Union over Greenland-related trade issues helped calm markets. Treasury yields eased back from their highs, equities reversed course, and the major indexes recovered quickly. The ability of the Dow Industrials and Transports to regain strength and press toward new highs reinforced the view that the early-week selloff was driven more by headline risk than by a deterioration in fundamentals.

Global rates developments added another layer of complexity. News from Japan continued to ripple through global bond markets, as investors assessed the implications of Japan’s gradual move away from ultra-loose monetary policy. Rising Japanese yields have increased global rate sensitivity, amplifying moves in U.S. Treasurys during periods of stress and retracement alike.

Earnings helped anchor sentiment amid the volatility. Netflix (NFLX) reported results that reassured investors on subscriber growth and pricing power. Intel (INTC) delivered a more mixed update with an earnings beat but offering soft guidance for the current quarter due to production issues. In healthcare, Johnson & Johnson (JNJ) posted steady results that reinforced the sector’s defensive appeal, while 3M (MMM) kept investors focused on restructuring progress and litigation resolution.

Despite sharp swings during the week, the broader message was resilience. Strong GDP momentum, easing inflation, and the market’s ability to recover quickly from tariff-driven shocks all underscored a still-constructive backdrop. With major averages near record levels and traditional economic bellwethers confirming strength, confidence in the real economy remains intact even as risks persist.

Looking ahead to next week, attention turns squarely to the upcoming FOMC meeting, where policymakers are widely expected to hold rates steady. Investors will scrutinize Chair Powell’s tone for how the Fed balances strong recent GDP data against cooling inflation and renewed trade uncertainty.

The coming week also brings a heavy earnings slate, including reports from Microsoft (MSFT), Apple (AAPL), Tesla (TSLA), Boeing (BA), Visa (V), and Chevron (CVX). With inflation easing, growth proving more durable than expected, and equities testing historic levels, the next phase for markets will hinge on whether policy clarity and earnings execution can sustain confidence, or whether fresh macro shocks once again challenge the rally.

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