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.
Last week, there was a reversal of course for volatility. This led the NASDAQ 8% higher. Is there volatility risk ahead?
Monday S&P 500 0.74% | NASDAQ 2.04%
The markets opened with a bounce as oil prices continued their retreat from recent highs. Unfortunately, the bounce was short lived. The markets reacted to word that President Biden would be making a trip to the EU. The trip is to discuss a fourth round of sanctions against Russia. Additionally, China announced a lockdown for 50M people as a spread of COVID cases persists.
Tuesday S&P 500 2.17% | NASDAQ 2.93%
Oil prices retreated on Tuesday, falling below $100 a barrel. This move created optimism on equity markets that the inflationary impacts from oil will be short lived.
Wednesday S&P 500 2.24% | NASDAQ 3.79%
Markets opened sharply higher as anticipation of the rate hike later in the day was baked in. Additionally, news broke of a potential light at the end of the tunnel for the turmoil in Ukraine. Putin made statements that a Ukraine that was neutral but maintained a military could be a path forward. Oil prices fell in response.
Thursday S&P 500 1.23% | NASDAQ 1.33%
The rally continued to push markets higher. This marks the third day of growth. Early trading was choppy, but the markets picked up steam as the day wore on. The market surge occurred while WTI Crude Oil crossed back over $100/barrel. The inflationary effect oil has on the economy would deter stock market growth.
Friday S&P 500 1.17% | NASDAQ 2.05%
Markets climbed even with oil sustaining at $100/barrel. While oil sustained their levels, they didn’t rise as they have as of late. The sustained level is not ideal, but better then an advancing oil market. Interest rates on the year treasury fell on the sustained equity rally.
Conclusion S&P 500 6.20% | NASDAQ 8.59%
Beginning on Tuesday, markets surged throughout the week (even as the Federal Reserve Board (FRB) initiated lift off). While the initial hike was a mere 0.25%, the increase was a measured response that was received well by investors. Investor reaction after having a weekend to mull the FRB strategy will be an indicator of future weeks. A strategy that could see hikes at almost all of their remaining meetings.
~ 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.