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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It was a quiet week for markets. Is this just the calm before the storm, or should we expect this to continue?
Monday
Markets were little changed on Monday. Literally the S&P 500 fell 0.05 points on the day. Oil occupied attention on the day as OPEC+ did not agree to increase production. This will likely leave us with elevated fuel prices for some time. In response, the US is considering releasing some strategic reserves to ease prices slightly, but no action was taken.
Tuesday
Retail sales dominated focus on Tuesday as they jumped a surprising 1.7% in October. This led to a buy sentiment among investors as the S&P 500 gained 0.38% on the day. This was either a sign of things to come or people getting ahead of anticipated inventory shortages this holiday season. To be determined…
Wednesday
Inflation concerns were stoked on Wednesday as oil inventories shrank when they were expected to expand. The S&P 500 contracted 0.26% on the day as those fears were in focus.
Thursday
All that was lost on Wednesday was recaptured on Thursday. Jobs data released showed that once again the pandemic job market is improving. Initial jobless claims fell to 268K, the lowest since the start of the pandemic. More importantly, on-going claims have fallen to 2.080M, again another low. The pre-pandemic level was roughly 1.7M.
Friday
COVID closures dominated the headlines and the market on Friday. With no economic data reporting on Friday, the focus was squarely on Austria. COVID closures may become more prevalent in coming weeks as colder weather sets in on Europe. Markets slipped, but not hard. The S&P 500 dropped 0.13% on the day.
Conclusion
The S&P 500 gained 0.32% on the week. Not a particularly interesting week, however, expect the volume on trading to ratchet up after the upcoming holiday. The debt ceiling still needs resolving by December 3rd. Unfortunately, rather than being resolved in the 11th hour, this may push out days passed that deadline. The treasury projects that they have the funds to keep the lights on till 12-15-21. We may see political wrangling until closer to that date. That wrangling will likely cause market volatility.
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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.