Market moves across the month were to the south. Fixed income markets seemed to have a more drastic message on the monitor than that of equities.
Fixed Income: 2-Yr Treas Yield 4.16% | 10-Yr Treas. Yield 4.28%
Bond markets went for a reversal ride in October. After several months of falling rates, we began to see a pullback in the bond market as interest rates rose. The 2-year treasury rose 0.55%, while the 10-year treasury rose 0.54%. The good news is that while rising, the rates did not invert again. The long picture remains intact. We are still in an elevated rate environment with them more likely to drift south rather than north. This move may have been the result of predictions for a potential structure that would mean tariffs. This would reflect a higher inflation potential which would signal a slower path in future rate cuts. Additional good news is that while rates from 6 months on rose, shorter duration rates continued to fall. This bodes well for the normalization of the entire curve.
Equities: Dow Jones 1.34% | S&P 500 0.99% | NASDAQ 0.52%
While it was a down month for equites, the overall move south was not bad for the month. From the top of the market for the S&P 500 (10/18/2024) to the end of the month logged a 2.83%. This proved to be a mild lead up to the beginning of November. The nice part is that while a correction has not materialized, earnings season did, bringing the P/E ratio for the S&P 500 back down to 21.19.
Throughout the month utility stock did well until the last week of the month. A shifting towards Financial and consumer discretionary was underway. Neither of which are surprising given interest rates (favoring financials) and the fact that we are in the fourth quarter… I like to say, ‘Americans spend money they do not have on things they do not need’, AKA: holiday season!
Conclusion
Equities pulled back less than was indicative of the rate move on the bond market. The move there signaled more concern about higher rates for longer than equities chose to price in. The shift in rates seemed like a long-term change in projection, while short rates seemed anchored to FRB actions. The longer rage rates often can be equated to long range GDP expectations. If the view is that we would have stronger forward GDP in 5 years, then we see a stronger 5-year rate.
A Look Ahead…
Market responses in October could have been far more drastic than they were. We should feel fortunate that we got the October that we did. This still leaves a correction (a market fall of 10% to 19%) unattended to. The last one ended 10/27/2023. While stretched P/E’s from over the summer have become more reasonable, that’s been due to strong earnings. Those may continue in the short run, but moving into 2025 those might be harder to come by. It may very well cause a correction in the first half of the year.
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Markets were green as earnings season got under way last week. Should we expect this to continue?
Monday
There was very little market data released on Monday. Markets were little changed on the day as the S&P ended in the red by .81 points and the NASDAQ was 0.4% lower.
Tuesday
CPI data rose to 2.5% YoY, the highest level since 2018. As of late, this would have led markets lower. A pause in the Johnson & Johnson vaccine actually caused concern of a slowdown in re-opening. This left the markets room to run higher as future inflation expectations moderated.
Wednesday
Markets floated in the green most of the day as earning season got underway. They slid near the close as jubilee over reduced risk of inflation was viewed as overdone the prior day. Rates rose on the day affirming the inflation trade.
Thursday
Retail Sales and initial jobless claims boosted the markets at the open. That surge held through the close with NASDAQ leading growth on the markets. Initial jobless claims fell to 576K, the lowest level since the start of the pandemic. Retail sales were expected to grow 5.9%, a healthy rise, however they grew by 9.8%!
Friday
Markets rose on Friday to end the week. The rise allowed all three indices to end the week in the positive. Leadership was in the S&P 500 on the day, resuming the re-inflation trade.
Conclusion
The S&P 500 gained over 1% for the week as earnings got underway. Financial companies led the way and impressed on earnings. Expectations will likely rise for them as long-term interest rates have been on the rise. Economic data for the week was generally positive and received as such. This past week was good measure of expectations for this earnings season!
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.