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.
~ Your Future… Our Services… Together! ~
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.
Markets ended the week slightly down from the last. Rates were in focus, but should they be?
Monday
Markets were in the red most of the day only to surge into the green in the closing minutes. Monday was light on economic data, but this week will have plenty for investors to focus on. Retail sales report on Tuesday, the Federal Reserve Board (FRB) meeting ends Wednesday, and Friday will be busy for derivatives.
Tuesday
The movement for markets was mild on Tuesday, but still in the red. The FRB kicked off their two-day meeting. This is a hotly awaited meeting as investors eagerly await the FRB’s response to the recent rise in rates. If they respond with an operation twist it will be viewed as yield curve control. As the long end of the curve rises, we create gap to the next recession. This is because we increase the travel required to a yield curve inversion.
Wednesday
Markets ran in red most of the day. At 2PM that all changed. The FRB meeting adjourned with no change in rates as expected. The dot plot (individual member polling for future rate hikes) pointed to an increasing acceptance of rate hikes in 2023. This willingness to accept the reality of the recent rate surge helped markets push ahead.
Thursday
Everything reversed course on Thursday. While the FRB reaction yesterday was welcomed, Thursday the focus was on higher rates likely not fading. The 10-year treasury was above 1.75% for the first time since before the pandemic.
Friday
Markets were fairly range bound on Friday. What was poised to be an active day in the derivative markets proved to be a mundane end to the week. Markets ended the day moderately lower.
Conclusion
In all The S&P 500 ended the week lower. Driven by a rise in the 10-year treasury rate, ending the week at 1.74%. A high enough level to cause concern (specifically for the speed by which we got there). However, this is a low enough level that monetary conditions are viewed as extremely loose. Pre-pandemic, the lowest level the 10-year treasury had ever reached was 1.37%. With it merely .37% higher, there is reason to ask if too much is being made of the recent rise.
~ Your Future… Our Services… Together! ~
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.