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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September turned out to be a volatile month after all. Should we expect a scare from October as well?
Monday
The S&P 500 started the week mildly lower, 0.27%. Core durable goods orders delivered less return than expected. It rose 0.2% in August where 0.8% was expected. The focus was more on the debate in Washington over the debt ceiling and the potential of a government shutdown.
Tuesday
Selling accelerated on Tuesday as the S&P 500 lost 2.04%. Long term interest rates climbed dramatically on the day as tighter monetary policy is expected in the future. The Federal Reserve Board (FRB) Chair, Powell, was testifying in Washington. Concerns that ’Transitory’ inflation, will not be so transitory, dominated rate activity.
Wednesday
Markets stabilized on Wednesday, but that is not necessarily good news. The S&P 500 rose 0.1%. It is important to observe investor activity the day following a large sell off. The lack of a bounce signals an acceptance of fair value for the losses of the previous day.
Thursday
Selling pressure persisted on the last day of the month as the markets sold off an additional 1%. This gave us a negative month on the S&P 500 for the first time since January. In case you forgot, we had Game Stop to thank for January… You take that out of the equation, and this is the first down month since October of last year.
Friday
New month, new you??? Markets welcomed the 4th quarter, as the S&P 500 rose 1.15% to end the week and say goodbye to September. The Government averted a shutdown on Thursday night lending to the upbeat tone of investors. To be clear, the debt ceiling still needs attention over the next few weeks.
Conclusion
What a September it was, as the S&P 500 lost 4.75%! A market correction is marked by a fall of 10% or greater. Look for volatility to continue in October as the debt ceiling situation remains unresolved. Also, we are building to what should be an FRB tapering program in November. That will be just in time for the consumer to save the economy with holiday shopping…
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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.