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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Growth stocks puffed out their chest this last week, but was it all in vain?
Monday S&P 500 – | NASDAQ –
Happy Rebellion Day!
Tuesday S&P 500 0.16% | NASDAQ 1.75%
The equity markets shifted dramatically to open the week. As it did the previous Friday, markets started the day in the red and clawed their way out. Investor sentiment was signaling a more growth friendly environment. This was because commodities continued to move lower, causing less and less concern around inflation. This would potentially mean a less aggressive Federal Reserve Bank (FRB). Growth stocks led on the day as a result.
Wednesday S&P 500 0.35% | NASDAQ 0.35%
Markets gained on the day, but it wasn’t until the final hour of trading that things moved into the green. Inflation driving commodities continued to tick lower. The FRB minutes from their last meeting came out on Wednesday. Nothing shocking was contained therein. It was just an over-abundance of inflation references and an FRB willing to do anything to eliminate the inflation threat.
Thursday S&P 500 1.50% | NASDAQ 2.28%
The climb resumed on Thursday as growth led the way higher. This came even as oil rose 3.83% on the day. The climb signals persistence to inflationary pressures. Trading may have been looking ahead at the jobs report due out Friday.
Friday S&P 500 0.08% | NASDAQ 0.14%
Friday was Jobs Day. The participation rate slipped a little; private nonfarm payrolls increased by 381K and the unemployment rate held steady at 3.6%. The job adds for the month were more than 100K higher than expected, showing continued health in the jobs market. This clears the path for the FRB to continue aggressively attacking inflation. On a sad note, Former Prime Minister of Japan, Shinzó Abe, was assassinated overnight. We send our prayer to Japan and all those personally touched by his loss!
Conclusion S&P 500 1.94% | NASDAQ 4.56%
Markets gained ground on the week, led decidedly by the battered growth markets. On the surface this appears as good news. Truly, this may be a signal of mounting concerns that the 2nd quarter will reflect negative growth for the economy. This would result in the classic definition of a recession. It means that the hawkish FRB goal of 3.5% fed funds rate by year end, may prove too lofty, which has pushed growth stocks higher. Ultimately, volatility should be expected as we come to the 2nd quarter GDP reading at the end of the month.
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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.