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 gained on the week. As earnings slow down, will consumers be able to power a 4th quarter boom?
Monday
Markets opened the week with a sigh as the S&P 500 rose 0.09% with not a whole lot of momentum. This reaction lowered VIX understandably. Forward looking volatility is becoming fairly low for the next month.
Tuesday
The Markets decided to turn on Tuesday, ending a long streak of daily gains. The S&P 500 shed 0.4% on the day. Producer Price figures weighed on investors as it showed that there was still inflationary pressure on companies. The fear being that inflation will be passed through to the consumer in the near future.
Wednesday
Initial jobless claims impressed on Wednesday, coming in at 267K, again the lowest mark since the start of the pandemic. However, this was not enough to prevent a continued slide on the markets. The S&P 500 shed an additional 0.8% on the day as the Consumer Price Index (CPI) rose more than expected. It came in at 6.3% YoY for October.
Thursday
The S&P 500 was fairly unchanged on the day; however, safe haven asset classes all caught a bid on the day (minus bonds). Bond markets were closed in observance of the Veteran’s Day holiday.
Friday
Markets surged into the close of the week. The S&P 500 gained 0.72% on the day and a 1.68% gain for the week! The JOLT’s job openings came in strong again at over 10M openings. This, coupled with higher job adds, is encouraging for where the job market will be heading. Impressively, we are already sub 5% unemployment, so the slack in the economy should start to tighten.
Conclusion
On Friday, consumer sentiment was projected to come in low for November. With retail sales reporting this week, it will be interesting to see if the divergence between the two continues. Although consumers say they are not bullish on the economy, actual spending would suggest otherwise. Retail sales have been strong the last few months. This could be pre-emptive shopping with light inventory expectations for the holidays; however, I think it’s continued strong consumer spending. The holiday spend will likely be large after the quiet 2020 holiday season.
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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.