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.
Is inflation showing signs of cracking? If so, what could it mean for market directions from here?
Monday S&P 500 1.86% | NASDAQ 1.59%
Equities rallied on a weaker dollar, making markets more attractive to international investors. Tariff relief was mentioned by the president to help inflation. The rise on Monday was the first in several weeks as the S&P 500 is riding a seven-week losing streak.
Tuesday S&P 500 0.81% | NASDAQ 2.35%
A retreat was in order on Tuesday as a negative earnings forecast from Snap sent markets lower. Interestingly, the low was not an entire erasing of yesterday’s gains. This is the first time in a while this has occurred. It may be a signal that we have seen the bottom… Just maybe…
Wednesday S&P 500 0.95% | NASDAQ 1.51%
Markets gained on Wednesday, marking the second day this week. Something that has also not happened in a while. The rise was partly attributable to the Federal Reserve Board (FRB) minutes. They indicated that the FRB expects to be flexible with their path given economic conditions. This opens the door to a more dovish FRB.
Thursday S&P 500 1.99% | NASDAQ 2.68%
The markets opened sharply higher and stayed there throughout the day. The catalyst was retail earnings data that impressed from Macy’s and Dollar General. Interestingly, strong earnings for Dollar General is more of an indication of the strong impact inflation is having on the consumer.
Friday S&P 500 2.49% | NASDAQ 3.35%
Markets surged into the end to the week. The gains amounted to a 6% week over week rise for the S&P 500. This jump could help the month of May end in the green (ever so slightly). A key piece of data released Friday morning was PCE data (inflation). It showed signs of a weakening, moving from 6.6% down to 6.3%. It may seem nominal, but year over year inflation does not move by big numbers.
Conclusion S&P 500 6.58% | NASDAQ 6.84%
The softening inflation data out on Friday was some of the most meaningful data from the week. Weaker inflation signaled that the more dovish FRB referenced on Wednesday may be a reality for markets. If that comes through, it could be fuel enough to cause a bit of a rally from this point.
~ 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.