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.
~ Your Future… Our Services… Together! ~
Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
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.
Welcome, 2022! There was a quick shift in market behavior as the calendar rolled over. What does it mean for the year?
Monday
The week began much as it ended. The low volume trade continued, resulting in an S&P 500 that rose 0.6%. Interest rates rose as expectations increased, speculating that Federal Reserve Board (FRB) minutes would reflect a more hawkish central bank.
Tuesday
The mild market activity continued on Tuesday. The S&P 500 ended the day down 0.1%. In sharp contrast, the Nasdaq slid 1.3% as we see leadership focused on Value stocks over Growth stocks.
Wednesday
Markets dove on Wednesday on FRB minutes that showed a more hawkish FRB. Taper, hike, and reduction of the balance sheet all to be on the table for March. Value outperformed Growth again, but everything fell. Hikes being on the table for March means that 3 to 4 hikes are possible for 2022.
Thursday
There was no dead cat bounce on Thursday in response to the fall on Wednesday. A dead cat bounce is when markets surge in response to a fall the prior day but fall short of recapturing the previous high. Interest rates remained elevated on the week in response to a hawkish FRB. ISM serviced data underwhelmed, falling 4 points short of the expectation. Omicron infection rates likely played into the slowdown.
Friday
Happy Jobs Friday! Jobs added missed expectations as the impact of Omicron began to make itself known. This generated lower rates and a sideways market at the open. The impression being that the FRB will have reason for a pause in March should jobs continue to show slow gains.
Conclusion
The volatility of the markets rose 2 points across the week. Additionally, 10-year treasury rates climbed 14 basis points. Both were most notably impacted by an aggressive FRB report. Volatility is really an indication of the next month or so. In contrast, the interest rate move is more likely an indication of 2022. The FRB is now expected to be more aggressive on the interest rate front. Tighter rates do mean less consumer spending, which lead to less corporate earnings. If done right, a balance can be reached, allowing for a good year for equities.
~ Your Future… Our Services… Together! ~
Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
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.