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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In spite of a rocky start, markets grew nicely this last week. Should we expect more growth to come?
Monday
Markets dove to open the week. The S&P 500 lost 1.6%. Fears over slower growth due to the Delta Variant and rising inflation gripped the markets. Earnings did not fail to impress for the day, which resulted in a few highlights. However, they did not burn bright enough to offset the negative sentiment.
Tuesday
Markets rebounded strongly as the Monday move turned into a ‘buy the dip’ mentality. The S&P 500 ended up gaining 1.5% on the day. Housing starts out-performed, coming in at a 6.3% increase versus 2.1% the prior month.
Wednesday
The move higher continued on Wednesday, as earnings were in focus. Earnings pushed the markets higher as Netflix was the only major company to miss earnings on the day. The economic data calendar was light with mortgage data being the highlight.
Thursday
The S&P 500 advanced .20% on Thursday. It was a day where it felt as though the markets were chasing their own tail. Markets actually opened in the green, despite initial jobless claims missing expectations. It then fluctuated into the red fulfilling the economic data that was released, but ended back in the green… Investor sentiment has been running strong ever since Monday’s sell off.
Friday
Markets rallied into the end of the week, with the S&P 500 climbing 1.01% on the day. Manufacturing data outperformed, coming in at 63.1, beating the 62.0 expectation. Services fell short, falling to 59.8. While strongly expansionary, it missed the intended mark of 64.8. This is an indicator that the re-opening is moving slower than expected. A slower re-opening could signal that inflation may not be as ramped as initially thought by many investors.
Conclusion
The strong Friday performance brought the week to a close up 1.95% on the S&P 500. This was an impressive week of gains when you consider that the S&P 500 lost 1.6% on Monday. The rebound and strong close on Friday are a testament to earnings. They are currently running at 86% of companies beating expectations. We are about a quarter of the way through earnings season, so there is still much to look forward to.
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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.