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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Volatility began to rear its ugly head last week. Are the markets going to face more of the same next week?
Monday
Happy Labor Day!
Tuesday
Markets started the week broadly lower. The lone index in the green was the NASDAQ as perceived safe havens outperformed. Bonds continued their interest rate increases from prior week as a reaction to the weak jobs report continued.
Wednesday
The S&P 500 was little changed on the day; however, all major indices were lower. The only gainer was the broad bond market (traditional safe havens). This came on news that JOLTs job openings have increased to 10.934M, representing weakness in new job adds.
Thursday
In a continued trend from Wednesday all equity markets were lower. Fixed income continued to see rates fall in a safe haven bid. New jobless claims fell to a pandemic low of 310K last week. This signaled continued healing in our job market, a rebuke to the moves from Wednesday.
Friday
The S&P 500 was lower on the day and subsequently the week. It fell 0.8% on the day. Producer prices (PPI) rose more than expected in August (8.3% YoY). PPI represents manufacturer/retailer costs which should translate to future inflation. PPI running hot signals that inflation concern could persist into the near future.
Conclusion
This was not the best of weeks for the markets. The S&P 500 shed 1.7% of its value as concerns regarding the job market and inflation persisted. Holiday shortened weeks are typically quiet, however this also marked the beginning of September trading. September is the most volatile month of the year for stocks. So expect volatility to persist in the near term.
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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.