 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, Nvidia, Banks, FRB |
There was green on the screen for the first time in August! Will it continue or was this a flash in the pan?
Monday S&P 500 0.69% | NASDAQ 1.56%
Markets pushed higher to open the week. Led by the chip sector in anticipation of Nvidia earnings due out on Wednesday. There was little on the economic calendar for the day, allowing markets to look ahead.
Tuesday S&P 500 0.28% | NASDAQ 0.06%
Equity markets opened in the green but faded as it went through the day. S&P downgraded several banks pushing markets lower. The main banks affected were regional banks with lower yields. The return of high yield savings caused oversized outflows from some regional banks.
Wednesday S&P 500 1.11% | NASDAQ 1.59%
Markets surged throughout the day on Wednesday. It was an anticipatory move for Nvidia earnings due out after the bell. Nvidia has been the face of the AI movement that has been the center of markets attention for 2023.
Thursday S&P 500 1.35% | NASDAQ 1.87%
Durable goods orders came in stronger and initial unemployment claims came in weaker than expected. Markets posted losses offsetting the gains from Wednesday. This was likely a pre-emptive move based on FRB’s Powell speaking on Friday.
Friday S&P 500 0.67% | NASDAQ 0.94%
Markets opened much as they had closed on Thursday. Equities pushed higher as the day progressed. Consumer sentiment came in lighter and 5-year inflation expectations came in stronger than expected, but still rooted firmly at 3%. Weaker sentiment signals that a weaker consumer ahead would justify a lighter load when it comes to future rate hikes. The Federal Reserve Bank (FRB) Chair, J. Powell, spoke at Jackson Hole and continued his hawkish stance on monetary policy. This did not deter markets. Ultimately, markets closed in the green for the day and the week.
Conclusion S&P 500 0.82% | NASDAQ 2.26%
The markets rose for the week for the first time since July. Nvidia stole the earnings show on the week, but unfortunately the FRB always steals the whole show. The Hawkish tone from the FRB sent a message that at least one rate hike should be expected shortly. The short-lived momentum from Nvidia will likely be just that. In the near-term a hawkish FRB will persist longer than an earnings report.
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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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Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
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.