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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Three straight weeks of gains nearly stalled on Friday. Does last week tell us anything about the rest of August?
Monday S&P 500 0.28% | NASDAQ 0.18%
Equity markets struggled to find a north on the 1st day of trading in August. After such a strong July, it was not surprising. Earnings season dominated the trade on the day.
Tuesday S&P 500 0.67% | NASDAQ 0.16%
Markets moved marginally between gains and losses all day. There was a political visit to Taiwan that escalated tensions between the US and China. Three key Federal Reserve Board (FRB) Governors were vocal on Tuesday about how far rates still needed to go. This likely carried more weight on the day’s trade. FRB governor comments are typically coordinated and used as a messaging system for the broader FRB approach.
Wednesday S&P 500 1.56% | NASDAQ 2.59%
The market surge started early and stayed through out the trading day. The gains were strong enough to wipe out the early losses from the beginning of the week. ISM Services showed a large surprise to the positive. This is a solid indication of a bounce in consumer activity in the third quarter. Additionally, to the same end, factory orders surprised to the north.
Thursday S&P 500 0.08% | NASDAQ 0.41%
On Jobs Day Eve, markets ended the day mixed. Initial claims pointed higher. An indication that jobs data may disappoint on Friday. Also, inflationary pressures from the oil markets appear to be diminishing. Oil prices moved under $90/barrel for the first time in since Russia invaded Ukraine.
Friday S&P 500 0.18% | NASDAQ 0.50%
Happy Jobs Friday! A good report resulted in weak markets. This was not shocking as the signal means a clear runway for FRB tightening. The economy added 528K jobs and the unemployment rate fell to 3.5%. Average hourly wages increased by 5.2% YoY. This is lower than the pace of inflation, but historically strong.
Conclusion S&P 500 0.36% | NASDAQ 2.15%
Thinner trading is expected for August, which is historically a weaker month of the year. It is likely that the month will not follow past trends given the better than expected earnings and economic data. Additionally, the weak start to the year may yield a more opportunistic August.
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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.