MARKET RECAP

• S&P 500 +1%
• The VIX is at its lowest level since January 2020, 12.46, this is in the midst of a possible recession next year and a war between Israel and Hamas.
• A survey by the NY Fed showed that 66% of US households have enough reserves to cover a surprise $2,000 expense, the lowest level in a decade.
• Initial jobless claims were only 209,000 last week.

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MARKET RECAP

The S&P 500 continues to tear higher, up 10% since the October low. For the week, US stocks advanced by 2.60%, international stocks by 3.52%, and bonds by 1.37%. The yield on the 10-year treasury fell by 13 basis points to 4.44%.

Investors figure that inflation is sinking, interest rates have dropped, and Fed cuts are coming. The CME Fed-Watch site says the market is pricing in four 25-basis point cuts by the end of next year. That seems contrary to the “higher for longer” theme that Fed officials preach.

MARKET RECAP

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.

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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.

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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.

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