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.

SCOREBOARD

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.

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.