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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The rally is over, or is it? Markets fell last week, but should we expect it to continue?
Monday S&P 500 0.40% | NASDAQ 0.62%
China lowered keys rates over night which yielded a bullish market at open. Heavy stimulus from China could signal a resurgence of activity later this year. This week will be heavy on consumer retail earnings.
Tuesday S&P 500 0.18% | NASDAQ 0.20%
Markets started the day in the red and floated into the green as the day progressed. Earnings out of Walmart beat expectations. Consumers are shifting their spend but still spending. They reported that the recent relief in fuel expenses has translated to consumer spending.
Wednesday S&P 500 0.72% | NASDAQ 1.25%
Energy prices increased on the day, raising concerns about future inflation. US exports of fuel increased last month as the US begins to replace Russian fuel supplies to Europe. Target failed to meet earnings expectations as inventories dragged on their performance. Federal Reserve Board (FRB) minutes from their last meeting were released. They showed an indication of slowing rate hikes ahead. Markets rebounded briefly on the news. Markets remained in the red throughout the day and ended there.
Thursday S&P 500 0.23% | NASDAQ 0.21%
Markets moved sideways most of the day trying to find a reason to rise. They did so in the final hour, but not by much. Short term interest rates floated down on the day and interest rate expectations softened. Oil prices firmed on the day, which will provide a contradictory opinion in coming days.
Friday S&P 500 1.29% | NASDAQ 2.01%
The equity markets retreated on Friday as anticipation builds towards the FRB’s meeting in Jackson Hole next week. As a result, the markets saw equities selloff, yields climb, a stronger dollar, and higher fuel-based commodities.
Conclusion S&P 500 1.21% | NASDAQ 2.62%
Welp, it was fun while it lasted, but the four-week rally seems to have lost steam. Markets closed the week in negative territory for the first time in five weeks. Eyes seem to be turning to Jackson Hole. The anticipation of a hawkish FRB will likely be fulfilled. As the economy continues to weaken with the current FRB activity, their resolve to stay hawkish will be tested. In the short run this could mean negativity, but in the intermediate term it should mean opportunity.
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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.