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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The bears are asserting themselves right now. Will the bulls be back this week to fend off the Bearish trend?
Monday
Happy Martin Luther King Jr. Day!
Tuesday
Markets opened the week as they had the prior week. Volatility was up and markets were down early! One concern was the potential for flight disruptions as wireless carrier giants roll out 5G near airports. The use of 5G has companies utilizing airwaves that had previously not been used. The concern being that they could provide potential interference for airlines.
Wednesday
The S&P 500 opened higher on Wednesday, but quickly faded into the red. At the open, equities were higher and fixed income was higher as well. Typically buying in fixed income is viewed as a defensive move. The equity sell-off that occurred into the close did not get accompanied by a sell-off in fixed income. Those continued to gain. This is a signal of perhaps a more bearish trend to come. The S&P 500 ended up losing 0.97% on the day. The NASDAQ, which lost 1.15% on the day, entered technical correction territory (being down more than 10% from it’s high). The S&P 500 is off 5.5% from it’s high on January 3rd.
Thursday
Markets opening strongly in the green. The S&P 500 was up more than 1.5% early on. Markets began to fade around 12:30PM EST and never looked back. The S&P 500 ended up falling 1.19% and the NASDAQ led the way, down 1.39%. Most of the losses came in the final hour of trading.
Friday
Movement within markets continued into the red on Friday, simply reinforcing the action from the entire week. Interest rates at the 10-year level fell. This is a more traditional reaction to an equity sell-off. The S&P 500 ended up dropping another 1.89%. The Nasdaq continued to lead the way, being down 2.72%.
Conclusion
The S&P 500 lost 5.68% last week and is down 8.31% from its January 3rd closing high. The Nasdaq 100, which has more growth focused positions, lost 7.49% last week and 12.88% from its November high. The controlled nature of this sell-off tends to reflect a more measured corrective environment. With the Federal Reserve Board meeting next week, all eyes will be on interest rates!
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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.