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 S&P 500 gained ground last week. Are markets calming down or should choppy waters be expected?
Monday
The week opened strong as the S&P 500 rallied 1.87% into the close. The fears around rate hikes subsided as the 10-year treasury yield fell slightly. Markets will be focused on Tech this week as they were a few weeks ago on financials.
Tuesday
The S&P 500 gained 0.69%, in what was pretty much a sideways day for markets. Expectations are pretty low for this month’s jobs report due out Friday the 4th. Concerns are mounting that the January report will be pretty disappointing as it will encompass the height of Omicron.
Wednesday
Markets rose on Wednesday aided by a strong earnings report from Alphabet (Google). Additionally, they announced a stock split which was received well by investors. The S&P 500 gained 0.95% on the day.
Thursday
Markets fell sharply on Thursday, surrendering the week’s gains. The S&P 500 ended up shedding 2.43%. Factory orders fell more than expected and while services outperformed expectations, they still fell sharply. A major driver on the day was earnings as Meta missed on earnings per share. This caused their stock to dive, taking communication stocks with it.
Friday
Happy jobs Friday! Markets loved the report. Not only was the data strong, but there were revisions for the last few months (an increase of 750K jobs). So much for Omicron putting a damper on job data. The S&P 500 ended up adding 0.52% on the day.
Conclusion
The S&P 500 gained 1.55% for the week. This was the best week for the S&P 500 so far in 2022. Not shocking, given recent volatility. The coming week’s economic calendar is light; however, the earnings calendar is loaded. Expect recent volatility to continue. Currently, 77% of companies have been beating estimates. Baring disruption, we should expect the markets to welcome the increased earnings data.
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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.