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 moved north last week, but what does recent history tell us we should expect in response?
Monday S&P 500 0.84% | NASDAQ 0.81%
The week opened with the S&P 500 1% in the green but faded through the afternoon hours. Apple (AAPL) announced that they will be slowing their hiring for the remainder of this year and 2023. This is a warning signal for what may be to come for other companies.
Tuesday S&P 500 2.73% | NASDAQ 3.09%
A wave of earnings released on Tuesday buoyed the markets. The NASDAQ outpaced the S&P for growth as major communications company earnings came into focus.
Wednesday S&P 500 0.59% | NASDAQ 1.58%
Growth leadership continued on Wednesday. Fears of a recession have stoked larger flames around yields not rising as far as originally thought. A recession would pressure the Federal Reserve Bank (FRB) to be more passive.
Thursday S&P 500 0.99% | NASDAQ 1.36%
Markets performed in the green for the day, however fixed income havens performed well. This is an underlying signal of conservativeness within a bear market rally. Bonds rallied on what appeared to be recession fears, while stocks performed well on second quarter earnings data.
Friday S&P 500 0.92% | NASDAQ 1.86%
Manufacturing data beat expectations, however, services data slipped into contractionary territory unexpectedly for June. Services make up the vast majority of our economy. Investors moved in a risk off manner as a result. NASDAQ stocks, which led the way throughout the week, led the march lower.
Conclusion S&P 500 2.55% | NASDAQ 3.33%
Friday’s negativity was not enough to dampen all the growth from the week. The NASDAQ led the way, rising more than 3%. This has now turned into a see-saw market; one week up, the next down. As of late, the downs have not been as deep. The earnings calendar is heavy this week but additionally, the Federal Reserve Board (FRB) is meeting. That will be watched closely as a 0.75% hike is expected.
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