US stocks fell for a second straight month on disappointment over the lack of a new fiscal stimulus deal combined with concerns over a second wave of the virus. No stimulus deal was reached between Congress and the Trump administration despite a growing chorus for aid, with potentially no deal until 2021. Meanwhile, COVID-19 cases hit new daily records during the month. Corporate earnings have been stronger than expected to date with 64% of S&P 500 companies reporting earnings to date, 86% have posted a positive earnings per share surprise and 81% have reported a positive revenue surprise. The economy continued to bounce back, but at a more muted pace. Employers hired 661,000 individuals in September. The first time below 1 million and short of expectations. The US has added back 11.4 million of the 22 million lost in March and April. The unemployment rate dropped to 7.9% from 8.4%. New claims for unemployment insurance fell over the month to reach their lowest level since March. Retail sales beat expectations and personal income rose, but manufacturing grew at a slower pace and auto sales were down 11% in the third quarter. Sales of previously owned homes rose to a 14 year high in September. Third quarter GDP came in at 33.1%, the largest ever quarterly gain as the economy regained roughly two-thirds of what it had lost in the prior quarter.
Foreign stocks fell in October over rising COVID-19 cases. Europe tightened lockdown measures to fight surging infection numbers with the UK, France, and Germany instituting new lockdowns. Evidence of increasing restrictions in the eurozone was on display in the October purchasing managers index, measuring the manufacturing and service sectors, as it fell to a four month low. To help stem the tide the UK announced new financial support for companies impacted by coronavirus restrictions. South Korea’s GDP rose a better than expected 1.9% in the third quarter. It joins China, which saw GDP growth of 4.9%, Taiwan, and Vietnam who have posted growth while countries in the west are still struggling to rebound from COVID-19. Emerging markets outpaced developed markets over the month and the year to date.
Bonds ticked down in October as interest rates rose. Meeting minutes from the Fed’s September meeting show the group was divided over how to communicate its new policy of allowing inflation to rise above 2% in order to target an average inflation level of 2%. Communication is key to helping set market expectations and avoid significant volatility in the bond market. The 10-year Treasury yield climbed over the month ending at 0.86%, up from 0.69% to start October. It was the highest one month jump since September 2018. In September, credit bonds were the top performer with short term maturities outpacing longer term maturities, while over the year to date, government bonds topped other sectors and longer term maturities outpaced shorter term maturities.
|Index Performance||Oct.||YTD||Trl. 1 Yr.|
|US Stocks (Russell 3000)||-2.16%||3.14%||10.15%|
|Foreign Stocks (FTSE AW ex US)||-2.14%||-6.86%||-1.91%|
|US Bond Mkt. (BBgBarc Int. Gov/Cred)||-0.22%||5.69%||5.67%|
|Municipal Bonds (BBgBarc 1-10 Yr Muni)||-0.20%||2.91%||3.44%|
|Cash (ICE BofA ML 3-Mo T-Bill)||0.01%||0.53%||0.80%|
There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated. Source: Morningstar, Inc.