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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Jobs, jobs, jobs… Markets are climbing as the job market is delivering! Will the gains hold?
Monday
Manufacturing PMI beat expectations to open the week. PMI came in at 60.8 when 60.5 was expected. The S&P 500 ended up rising 0.18% to open the week. The Small cap markets surged substantially on the day, however, gaining over 1%.
Tuesday
The S&P 500 gained 0.40% on the day and led the way for markets. In all, it was a strong day as all major US indices were up. This may have been an anticipatory trade as it led into the Federal Reserve meeting results on Wednesday.
Wednesday
Markets hovered slightly in the red most of the day, but in the closing hour, markets surged. This came as investors were pleasantly surprised with the taper program announced. The program was assumed to end in the 2nd quarter and now is projected to end in the 3rd quarter. The S&P 500 ended up gaining .64% on the day.
Thursday
Initial jobless claims… fell to a post pandemic low! Sound familiar? It fell to 269K, inching closer to pre-pandemic norms. On-going claims fell as well, in a continuing trend as of late. The S&P 500 added 0.4% on the day.
Friday
Happy jobs Friday… No really… US employers added 531K jobs when 450K were expected. This dropped the unemployment rate to 4.6% from 4.8%. The one piece of disappointing news was the continued stagnation of the participation rate. We currently sit 1% lower than pre-pandemic levels, or roughly 1.6M workers.
Conclusion
The first week of every month is generally all about job data–this week is no different. In the coming weeks, expect the focus to shift from jobs to earnings, then ultimately, to the debt ceiling. This issue is unresolved and poses a concern for the end of November/start of December…
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