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.
Market volatility remained high this last week. What asset classes can we look to for growth in the near-term?
Monday S&P 500 1.69% | NASDAQ 2.18%
Markets opened in the red and the sell-off deepened as the day progressed. Yields surged on Monday leading markets lower as anticipation grows over inflationary data due out Tuesday. Higher yields have a larger effect on growth stocks, which was evident by the heavier losses on the NASDAQ.
Tuesday S&P 500 0.34% | NASDAQ 0.30%
Headline Consumer Price Index (CPI) came out at 8.5% (inflation). This higher reading should have led markets lower, but instead the S&P 500 was up as much as 1.5% early. Those numbers faded to the red late in the day as more negativity is anticipated as earnings season gets underway. Core CPI (which strips out fuel and food) grew less than expected and may have played into the early rally.
Wednesday S&P 500 1.12% | NASDAQ 2.03%
Consumer Discretionary, Technology, and Materials all surged on the day. This flies in the face of recessionary fears. This signals a strong consumer in the near term as earnings season gets underway. Interestingly, consumer behavior has directly contradicted consumer sentiment. We are at multiple year lows on sentiment; however, actual consumption remains strong.
Thursday S&P 500 1.21% | NASDAQ 2.14%
Markets opened in the green and quickly retreated into the red. This marks the last day of trading for the week as Good Friday is a market holiday. The move lower was led by growth stocks as the rally in bond yields resumed leadership on the day. The growth heavy NASDAQ nearly doubled the losses of the broader S&P 500. The sell sentiment almost felt as though investors did not want to hold shares into the long weekend.
Friday S&P 500 X.XX% | NASDAQ X.XX%
Markets were closed in observance of Good Friday.
Conclusion S&P 500 2.16% | NASDAQ 2.64%
Interest rates, interest rates, interest rates… That was the story for the majority of the week. We have a pretty clear view of the road ahead:
- GDP is growing at a clip above 5%
- Persistent inflation, though softening core levels
- Better than expected corporate earnings
The picture over the next year provides reasons to be optimistic. Asset classes that provide a hedge against rising rates and companies that carry little leverage appear to be poised to win the day.
~ 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.