MARKET RECAP

• US stocks up by 0.95%, international stocks fall by 0.70%, bonds down by 0.23%.
• Stocks were up every day except Thursday when they fell due to a weak bond auction.
• Earnings will be up this quarter. So far, S&P 500 earnings are up 3.7% for Q3 over the previous year. This would break a three-quarter losing streak.
• Leading Economic Indicators are negative and the odds of a recession are slowly increasing.
• Moody’s kept the US credit rating at Aaa but adjusted their outlook to negative. Rising interest rates could result in interest payments representing 26% of revenue by 2033 from 9.7% in 2022.
• Oil has been falling and is now down by 14% since October 19th.

US STOCK MARKET (VTI)

SCOREBOARD

MARKET RECAP

Equities had a monster rally worldwide; US markets jumped by 6.05% and international stocks by 5.78%. Bonds rallied by 2.02% as the 10-year yield fell by 27 basis points. Markets rallied when the Treasury announced that long-term debt auctions would be smaller than anticipated. In addition, economic data came in softer than expected. Interest rates dropped like a rock in response.

During the week, the Fed announced they would hold interest rates steady. Investors are assuming that interest rates are near their peak. Also, job growth was only +150,000 in October, half of the September gain. All of this news combined set up a “Goldilocks” scenario, at least that is the way the market reacted.

SCOREBOARD

October 2023: Financial Markets Enter Octoberfest with a Dose of Reality

October 2023 saw financial markets navigating a mixed bag of anxieties and cautious optimism, much like the weather shifting between crisp autumn mornings and warm afternoon spells. Here’s a breakdown of the key themes:

Equity Market Pullback:

• Major indices retreated further, extending the downtrend from September.
• The S&P 500 lost 2.1%, the Dow Jones dipped 1.3%, and the Nasdaq Composite shed 2.8%.
• Small-cap and mid-cap stocks suffered even more, highlighting increased risk aversion among investors.
• Only Utilities and Technology managed to eke out small gains, the latter driven by specific company earnings surprises.

Rising Yields Bite:

• The long-held hope of Fed’s “pivot” towards a dovish stance faded as inflation stayed stubbornly high.
• The 10-year Treasury yield climbed from 4.58% to 4.79%, reflecting market expectations of further rate hikes.
• This put pressure on interest-rate sensitive sectors like technology and consumer discretionary.

Economic Resilience Fails to Buoy Markets:

• The US economy displayed surprising resilience, with a strong third-quarter GDP growth of 1.2%.
• However, this positive data was overshadowed by concerns about the sustainability of growth amidst rising interest rates and slowing global demand.
• Survey data pointed towards weakening consumer and business confidence, further dampening market sentiment.

Sector Rotation and Energy’s Rise:

• Investors sought shelter in defensive sectors like Utilities and Consumer Staples.
• Energy, benefiting from tight supply and geopolitical tensions, became the biggest laggard with a 5.8% decline.
• The strong dollar weighed on international investments, with emerging markets feeling the brunt of the pressure.

Other Notable Events:

• US government funding concerns briefly spooked the market before a temporary agreement was reached.
• Corporate earnings season commenced, offering mixed results with some companies beating expectations and others falling short.
• Geopolitical tensions remained prevalent, with the war in Ukraine and rising US-China rivalry influencing investor sentiment.

Overall, October 2023 proved to be a month of cautious adjustment for financial markets. While a strong economy provided some solace, rising interest rates and persistent inflation anxieties kept the bears in control. 

MARKET RECAP

US stocks fell by 2.57% and international stocks by 1.10%. US stocks are now in correction territory, down 11.05% from their July high. Bonds managed a 0.64% rally. The US economy grew at a robust 4.9% in Q3, up from 2.1% the quarter prior. The GOP elected a speaker, Mike Johnson, after a couple of weeks of going through a series of nominees.

SCOREBOARD

MARKET RECAP

US stocks fell by 2.37% and international stocks by 2.75%. Bonds dropped by 1.75%. The yield on the treasury hit 4.98% this week, the highest level since July 2007. The yield has had a steep rise since the Fed last increased interest rates in late July (up over one percentage point). Stocks are now down by 7.5% since July 26th.

86 S&P 500 companies have reported earnings, recording a 4.9% increase over last year. Almost 3/4 have topped estimates.

The Fed seems like it will hold off on interest rate increases for the time being but is sticking with the higher for longer theme.

SCOREBOARD

MARKET RECAP

US stocks etched out a small 0.27% gain on the week despite the aftermath of the Hamas terrorist attacks on Israel. Oil, gold, defensive stocks, and the US dollar increased as beneficiaries of the Hamas terrorist attacks. Some investors are thinking that the Fed pivot on interest rates might be in sight. Several Fed officials said that the big increases in bond yields have tightened financial conditions, in other words, the market may have already done a lot of the Fed’s anticipated future work.

SCOREBOARD

September 2023: A Grim Harvest for Financial Markets

September proved to be a harsh month for financial markets, echoing the falling autumn leaves with a sharp decline across major asset classes. Here’s a closer look at the key themes:

Stocks Plummet:

• The bears feasted in September, sending major indices reeling.
• The S&P 500 tumbled 4.8%, the Dow Jones shed 3.4%, and the Nasdaq Composite plunged 5.8%.
• Technology stocks, once the market darling, led the downward charge, facing the brunt of higher interest rate concerns.
• All other sectors, except energy, ended the month in the red.

Hawkish Fed Hammers Sentiment:

• The Federal Reserve delivered another 0.25% rate hike, but its hawkish rhetoric cast a long shadow.
• Officials hinted at continued tightening, even at the risk of economic slowdown, to combat persistent inflation.
• This triggered fears of an “earnings recession” and further dampened investor sentiment.

Weaker Economic Data:

• Economic data pointed towards a potential slowdown.
• Retail sales and industrial production grew at a slower pace, while consumer confidence remained subdued.
• These numbers fueled concerns about the impact of higher rates on economic activity and corporate profits.

Bond Yields Climb:

• The 10-year Treasury yield soared from 4.15% to 4.58%, reflecting the market’s anticipation of more rate hikes.
• This further pressured growth stocks and caused a flight to safety towards bonds.

Global Malaise:

• International markets mirrored the US weakness.
• The MSCI EAFE fell 3.4%, with European economies grappling with energy shortages and inflationary pressures.
• Emerging markets suffered even more, with the MSCI EM dropping 2.6% amidst slowing growth in China and global risk aversion.

Other Notable Events:

• The UK entered a recession, raising concerns about a similar path for other economies.
• Geopolitical tensions remained elevated, with the war in Ukraine and US-China relations presenting uncertainties.
• Supply chain disruptions continued to impact businesses and add to inflationary pressures.

Overall, September 2023 was a harsh reality check for financial markets. The optimism of earlier months dissipated under the weight of rising interest rates, slowing economic growth, and heightened geopolitical anxieties. October will be crucial in determining whether this downturn is a temporary blip or a sign of a longer-term bear market.

RECENT MARKET NEWS

• US markets down by 2.98% for the week and are now down 4.24% for the month, international stocks fall by 1.99%. Bonds were down by 0.46% and down by 1.54% for the month. The 10-year bond hit a 16-year high.
• The CPI was up by 0.6% month over month and 3.7% year over year, mainly due to higher energy prices.
• There is still hope for a soft landing, but inflation, fed policy, and higher interest rates all present challenges.
• The US budget deficit was $1.5 trillion as of the end of August, up by $577 billion from last year. And, of course, higher interest rates will make the situation that much more unmanageable.

SCOREBOARD