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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After three weeks of losses, markets were back in the green last week. Should it continue?
Monday S&P 500 -% | NASDAQ -%
Happy Labor Day!
Tuesday S&P 500 0.41% | NASDAQ 0.74%
ISM Services Data came in at 56.9, much higher than expected. Meanwhile S&P Service PMI came in at 43.7! These two surveys have deviated from each other as of late. The ISM survey is seen as broader as it covers more industries and therefore garners more market attention. The strength of the economy gives more freedom to the Federal Reserve Board (FRB) to be aggressive against inflation.
Wednesday S&P 500 1.83% | NASDAQ 2.14%
A fall in oil prices led to a Tech led rally that raised all markets. Lower oil prices signal lower future inflation pressure, which means less risk of higher rates from the FRB. While rates are rising in the short-term, markets are starting to look at the rate hike path for 2023.
Thursday S&P 500 0.66% | NASDAQ 0.60%
Two green days in a row… This has not happened for the last two weeks. The largest gains came in Financials, Healthcare, and Materials. Healthcare is a decidedly defensive play. Financials would perform well on the prospect of further rate hikes.
Friday S&P 500 1.53% | NASDAQ 2.11%
Friday saw a rise in oil prices, threats from Russia regarding fuel, and FRB comments showing commitment to rate hikes… Markets rose… At this point this may be a rally off the recent lows and less so about the daily economic data.
Conclusion S&P 500 3.65% | NASDAQ 4.14%
After three weeks of market losses, both the S&P 500 and the NASDAQ Composite gained for the holiday shortened week. Interestingly, volume was light last week as though it was a summer month. The FRB meets next week, and a 0.75% rate hike is expected. That could likely dampen some of the growth prospects in the short run.
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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.