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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It was a rough week for markets. Volatility is up, but will it be here to stay or are the clouds soon to part?
Monday
Markets dropped at the opening bell and gained briefly in mid-day trading; however, the S&P 500 never really gained momentum for the day. The index closed down .38% for the day. Importantly, the 10-year treasury closed above 2% for the second time in a week.
Tuesday
The S&P 500 opened in the positive at the news of easing tensions in Russia and Ukraine. PPI Figures came in slightly lower at 9.7% (Jan) compared to 9.8% (Dec) but are still high. As wholesale prices increase, the price to the consumer will also go up which is the concern with inflation. The market appeared undeterred following three day of negative trading. S&P closed up 1.58%.
Wednesday
The market looked like it was preparing for another down day in anticipation of FRB minutes from January. The S&P 500 was down 0.8% most of the day. In the end it climbed out, managing to rise 0.09%. At the same time the 10-year treasury slipped back below 2%. So, while the markets regained composure, safe haven assets were being purchased.
Thursday
The S&P 500 tumbled on Thursday, falling 1.70%. The NASDAQ led the way lower, falling 3%. Fears came from two fronts on Thursday. Markets were feeling tensions rise in the situation between Ukraine and Russia. Additionally, Federal Reserve Board (FRB) member, Bullard, spoke. He indicated the FRB would have to take more aggressive action than the markets were pricing in to fight inflation.
Friday
Markets continued the slide into Friday. The S&P 500 lost 0.72% on the day. It is not surprising to see markets sell into the long holiday weekend. It is an extended period of time for bad things to happen, given the geo-political risks at play.
Conclusion
The S&P 500 ended up losing ground by 1.57% last week. It is coming close to closing down 105, which marks a technical correction. Volatility is up and safe haven assets are catching a bid. This marks the first correction since September-October 2020. They are typically 2 to 3 months in duration. That means we still have time for some more volatility before the cloud’s part…
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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.