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.
The Federal Reserve would like to hike at a fever pitch. What did last week tell us about their ability to do so?
Monday S&P 500 2.95% | NASDAQ 3.62%
The weekend yielded enough negative news to give us a red Monday. Continued failure of ceasefire agreements spells uncertainty, which the market loves… More and more companies are coming out against Russia’s actions, resulting in more supply chain issue expectations. Interestingly, yields rose with the market fall. This was as a result of inflation concerns that would stoke the need for additional Federal Reserve Board (FRB) action.
Tuesday S&P 500 0.72% | NASDAQ 0.28%
The United States announced an embargo on Russian oil imports. Meanwhile, actions out of Europe were more measured. The UK announced a phase out, while the EU announced a 2/3 reduction by year end. Markets travelled between green and red all day, but one thing was consistent: the NASDAQ outperformed the S&P 500. This marks a deviation from recent norms.
Wednesday S&P 500 2.57% | NASDAQ 3.59%
In a stark contrast to the first few days of the week, Wednesday surged greatly. The move represents investor fears that inflation will persist, and the FRB will be able to do little about it. The inflation source will be fuel/food, which will erode consumption: the same net effect of an FRB raising interest rates. Bottomline, when you are spending on gas, you are less likely spending elsewhere.
Thursday S&P 500 0.43% | NASDAQ 0.95%
Investor sentiment was decidedly sour at the open as markets were down more than 1% at points. They rebounded late to cut losses. This happened in the face of a stalemate in talks over Ukraine. The driver was a statement by Putin that gave hope that oil shortages may not occur. He indicated that they would honor all energy commitments (even with countries that are not aligning with them). This brings hopes of contained inflation, which would keep from eroding consumer spending.
Friday S&P 500 1.29% | NASDAQ 2.17%
Markets spiked at open but faded throughout the day. Markets accelerated their losses into the close. Hurting confidence from the start of the session was weakening Consumer Sentiment. It had fallen to the low 70’s when the pandemic began, but it is now projected into the high 50’s. This is a level not seen since mid-2011, when the US breached the debt ceiling. Additionally, energy prices provided pressures to the market concerning investors that inflation would remain pervasive. The see-saw around oil prices will continue to drive investor sentiment until more certainty is known about Ukraine’s future.
Conclusion S&P 500 2.88% | NASDAQ 3.52%
The week looked much like the last several. The NASDAQ fell harder than the S&P 500 as inflation concerns make an FRB rate hike all but certain. This would mark the second lift off for the FRB over the last 7 years. During the last rate hike environment, the FRB increased the rate from 0.0% to 2.25% – 2.5%. The move took four years to happen. This time it is expected by many that the FRB would make that same progress in about one years’ time. This is why the aggressive repricing of stocks occurred at the start the year. Investors are pricing in the impact higher rates will have on earnings. Realistically, headline risk evolves and may cause reason for pause over time. FRB progress to 2.5% would likely take two years given headline risks.
~ 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.