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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With a close eye on inflationary pressures, will the recovery continue as wanted or will they need help finding equilibrium?
Monday
Markets fell .25% on Monday as the week continued the losses from the prior week. The NASDAQ led the way lower as it has for the last couple of weeks. Although current housing statistics are lower, the NAHB housing index is holding steady at 83. Interest is there; however, material costs and a lack of inventory are stemming growth.
Tuesday
In a continued fall of market activity, the S&P 500 slid .85% Tuesday. The NASDAQ trailed the S&P 500 for a change during the fall. Both new housing starts and building permits fell in April. Lending to the pessimism about current economic conditions. This should yield a net gain as the reopening seems to be coming on slower than expected, quelling concerns about inflation.
Wednesday
The slide in market value this week continued with the S&P 500 falling .29% Wednesday. Again, the NASDAQ lagged the S&P 500 on the fall. Gold and interest rates gained on the day.
Thursday
In an attempt to stage a rebound on the week, the S&P 500 rose 1.06%. The NASDAQ led the way as the dollar weakened and concerns over inflation seemed to subside. Most of the recovery trade on the day related to initial jobless claims coming in at 444K. This is the lowest level since the start of the pandemic and the third week in a row under 500K.
Friday
The S&P 500 was little changed on Friday. Both manufacturing and services PMI information improved from the prior month. Manufacturing experienced a minor increase, while services jumped dramatically.
Conclusion
The markets as a whole continue to gauge price increases against worker production to alleviate supply shortages. The question has been whether reentry into open employment opportunities would keep pace with consumer demand. Figures show that there continues to be a slow movement back into the workforce. New housing starts fell which reflects a slower recovery in this area. Housing data eased major inflationary concerns following the spike in the Consumer Price Index (CPI) figures from April. The .43% fall for the week was not much, but enough to keep the recent trend of weekly losses continuing.
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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.