Hello all - we hope you had a nice October.
It was finally a nice month for the markets. The Dow did extremely well and had its best month since 1976 on a gain of 14.1%.
It was finally a nice month for the markets. The Dow did extremely well and had its best month since 1976 on a gain of 14.1%.
The S&P and Nasdaq had their best month since July with gains of 8.1% and 3.9%, respectively.
Here’s a closer look at the markets this month.
While the overall markets were higher, the performance of the different sectors varied widely.
Tech stocks did very poorly this month.
On the other hand, the energy, financial, and other “old economy” sectors did well. These old economy sectors include industrials, which are stocks like Union Pacific, Honeywell and Caterpillar. The other sector is consumer staples, which has names like Proctor and Gamble, Coca-Cola, and Colgate-Palmolive.
Tech stocks did very poorly this month.
On the other hand, the energy, financial, and other “old economy” sectors did well. These old economy sectors include industrials, which are stocks like Union Pacific, Honeywell and Caterpillar. The other sector is consumer staples, which has names like Proctor and Gamble, Coca-Cola, and Colgate-Palmolive.
Also helping the market was a lower U.S. dollar. A trend we’ve seen lately is as the dollar strengthens, the market goes lower. This month, the dollar was weaker and the stock market rose.
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EARNINGS
While the Fed had been the main driver of the direction of the market over the last few months, corporate earnings finally took the spotlight in the latter part of October.
Actually, some of the attention to earnings may have been because the Fed was in a “blackout period” before their policy meeting this week. The blackout period meant no speeches or press appearances for the Fed members, so its possible the lack of visibility caused the market and press to focus their attention elsewhere.
Regardless, we’re about halfway through the corporate earnings results for the third quarter and results haven’t been that great.
Tech companies, in particular, have not fared well and are warning of a slower economy in the coming months.
Other sectors are doing fairly well, though. Like we mentioned in the intro to this commentary, sectors like energy, financials, industrials, and consumer staples have held up nicely. Travel and luxury companies have done well, too. The good returns in these stocks and sectors helped the overall markets this month.
While the Fed had been the main driver of the direction of the market over the last few months, corporate earnings finally took the spotlight in the latter part of October.
Actually, some of the attention to earnings may have been because the Fed was in a “blackout period” before their policy meeting this week. The blackout period meant no speeches or press appearances for the Fed members, so its possible the lack of visibility caused the market and press to focus their attention elsewhere.
Regardless, we’re about halfway through the corporate earnings results for the third quarter and results haven’t been that great.
Tech companies, in particular, have not fared well and are warning of a slower economy in the coming months.
Other sectors are doing fairly well, though. Like we mentioned in the intro to this commentary, sectors like energy, financials, industrials, and consumer staples have held up nicely. Travel and luxury companies have done well, too. The good returns in these stocks and sectors helped the overall markets this month.
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THE FED
A lot of the optimism in the markets this month was due to the Fed, too.
The Fed has been sharply pulling back on their stimulus (by raising borrowing costs) in recent months. However, many investors believe the Fed is now at a point where they won’t pull back on stimulus as much. This has given a tailwind to the markets.
The Fed meets later this week and we’ll find out their plans for the stimulus program. It’s very likely we’ll see a lot of volatility - either higher or lower - depending on what they announce.
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INFLATION
With the Fed so focused on inflation, investors have been paying very close attention to it, too.
Investors were looking for inflation to come down over the past month, but the CPI report showed inflation increasing again when looking at it month-by-month.
On a yearly basis the inflation level is lower, but the “core” metric, which excludes food and energy, was higher. This is a bad sign for inflation.
Here’s a look at the “core” metric on a monthly basis:
Inflation at the business level (the PPI) moved higher on a monthly basis again. Investors were hoping to see this number lower.
On an annualized basis, though, PPI is lower.
We’re seeing evidence of more costs coming down, too. Shipping prices keep coming down and this will translate into lower CPI and PPI prints in the future.
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OTHER ECONOMIC DATA
Economic data released this month was almost all negative. The one bright spot was the GDP report showing the strength of the economy over the past quarter. Following two down quarters, the GDP growth was a decent 2.6%.
Economic data released this month was almost all negative. The one bright spot was the GDP report showing the strength of the economy over the past quarter. Following two down quarters, the GDP growth was a decent 2.6%.
As for the bad news, the manufacturing and service parts of our economy moved lower over the most recent month.
Job openings were sharply lower.
We don’t talk about housing often, but home prices look like they are starting to make the turn lower.
Home prices traditionally rose at the same rate as people’s incomes. In the chart below, you can see just how disconnected they have become in recent years.
Home prices traditionally rose at the same rate as people’s incomes. In the chart below, you can see just how disconnected they have become in recent years.
Retail sales were flat from the previous month.
Durable goods - which are items with a longer life, like a phone or dishwasher – turned lower.
Consumer confidence also turned lower.
Confidence at small businesses rose slightly, for its third higher month.
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Where does the market go from here?
A lot depends on the news later this week.
First, we have the Fed meeting which will give us more clarity on their stimulus plans.
The monthly employment report will be released on Friday. The Fed believes more employment results in more inflation, so they want to see less employment (although they are completely wrong in this belief). A bad employment report will likely be good for the stock market.
Next week we have the midterm elections and the inflation reports, all certain to impact the markets.
Helping the markets right now is seasonality. The last three months of the year are usually the best time of the year for the market. This is especially true in an election year, like this year, so this gives the market a tailwind.
The market indicators we follow show stocks being somewhat expensive in the short term and the odds of a pullback are greater than a rise. Like we mentioned above, though, a lot of news is coming that will impact the direction of the market.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
A lot depends on the news later this week.
First, we have the Fed meeting which will give us more clarity on their stimulus plans.
The monthly employment report will be released on Friday. The Fed believes more employment results in more inflation, so they want to see less employment (although they are completely wrong in this belief). A bad employment report will likely be good for the stock market.
Next week we have the midterm elections and the inflation reports, all certain to impact the markets.
Helping the markets right now is seasonality. The last three months of the year are usually the best time of the year for the market. This is especially true in an election year, like this year, so this gives the market a tailwind.
The market indicators we follow show stocks being somewhat expensive in the short term and the odds of a pullback are greater than a rise. Like we mentioned above, though, a lot of news is coming that will impact the direction of the market.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
