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 were on the rise last week, but so were initial jobless claims. What does his mean to re-opening efforts?
Monday
Markets climbed nicely to open the week. ISM Non-manufacturing (Services) data released a strong reading at 63.7 (Mar). As a reminder over 50 signals expansion and under 50 signals contraction. This is by far the highest reading since the start of the pandemic. Non-Manufacturing is a major reading as approximately 84% of our economy is built on services.
Tuesday
The S&P 500 was minimally changed on Tuesday as available jobs increased sharply. This is a signal of continued re-opening momentum. We are currently in a ‘good news is bad’ cycle as concerns over inflation persist. The more it appears things are going well the more market softness we seem to be getting.
Wednesday
Crude oil inventories fell more than twice the expected amount; however, OPEC supply hikes are expected. Energy prices were negative, but minimally changed. The S&P 500 changed minimally as well, but to the contrary rose for the day.
Thursday
Markets climbed on Thursday as jobless claims rose. The softer trend in jobs led to NASDAQ leadership and interest rates softening. Energy lost value as natural gas storage increased. The increase was less than expected so it should carry a bullish trend ahead.
Friday
Leading into the weekend, markets gave us a buy signal. The S&P 500 rose .76% with most of the gains coming in the last hour of trading. This trend signals no fear in the weekend headline cycle and a buy mentality from investors.
Conclusion
The week carried many bullish signals. The IMF is projecting a 6.4% growth rate for the US in 2021. Service industries showed strength with a 63.7 rating. Oil prices moderated reducing the risk to headline inflation (in the short term). Yet a troubling signal persisted with the initial jobless claims rate increasing for the third straight week. During a time where states are beginning their re-opening process, the expectation is for this statistic to start to moderate. Should this be concerning? No. Most states have not executed their re-opening as of yet. One of the largest states by population, California, is targeting mid-June for their re-opening process. Delays in re-opening just help keep inflation expectations in check at this point.
~ 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.