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. Is the S&P 500 finding its legs or is there cause for concern?
Monday
Markets were mostly flat to open the week. A great signal after ending last week in record territory for the S&P 500. Holding on to those gains may signal more ahead.
Tuesday
The S&P 500 was flat on the day as treasuries got a bid. This is a move that seems to signal investors are beginning to accept Federal Reserve direction. A bid to treasuries is a concession that inflation is likely to not carry as much concern as originally expected.
Wednesday
In a continued bid for safe haven securities, equity markets ended the day slightly lower. The 10-year treasury was getting a bid as it ended the day at 1.47%. This was the lowest level since the beginning of March.
Thursday
Markets climbed on Thursday. CPI data released showed robust growth of inflation, which typically would elicit a falling market. This indicates that while the number was high (Core CPI at 3.8%) it is not expected that inflation will persist.
Friday
As of late, the end of the week has been generally telling for investor sentiment. The data has been light, leaving investor response to really signal what risks the weekend may hold. This Friday we got favorable consumer sentiment projections and a rise in markets. This indicates that the weekends news cycle is not of major concern.
Conclusion
The S&P 500 rose by 0.41% for the week. Movement was fairly muted, but investor sentiment was strong. The volatility could tick up from here as volumes will moderate over the summer months. Lighter volume typically brings choppier waters.
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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.