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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Rates were more subdued last week. Has inflation been overblown or will rates continue to climb in response?
Monday
Investors attempted to move higher at the open of the week, but they failed… The S&P 500 ended up losing 0.8%. A 3% rise in oil prices stoked concerns that inflation was going to persist.
Tuesday
Markets slipped as the S&P 500 lost 0.4% on the day. Earnings season starts in earnest this week with most major banks reporting. Concerns lie not with current performance but rather the forwarding guidance. The expectation is that companies will begin to reference the impact inflation will have on future performance.
Wednesday
The S&P 500 rose 0.3% on earnings data. Economic data was not aiding markets as headline inflation rose to 5.4% YoY in September. Softer core inflation caused interest rates to slip though. This could cause the Federal Reserve Bank (FRB) to delay the start of tapering. An overall dovish policy move that favors growth stocks.
Thursday
Investors drove the market higher at the open as employment data improved. For the first time since the start of the pandemic initial jobless claims fell below 300K. Markets were able to hang on to the gains as the S&P 500 rose 1.7% on the day!
Friday
Markets moved up to close the week. The S&P 500 rose 0.75% on the day. Markets jumped at the open on unexpectedly strong retail data for September, closing out the 3rd quarter. After the jump at open, investors coasted into the close.
Conclusion
The S&P rose nearly 2% on the week, while yields started to shrug back from their highs a few weeks ago. Interest rates are still expected to be on the rise from a cyclical standpoint. The tactical move lower is not surprising considering the shock to the upside over the last month.
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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.