October Market Commentary

Market Commentary

US stocks rallied to a new record high in October and posted the best monthly performance in a year driven by better than expected corporate earnings. With roughly half of S&P 500 firms reporting earnings, 82% have beaten analysts’ earnings estimates. Lawmakers reached a deal to extend the debt ceiling through early December. Economic readings continue to point to growth, but at a slower rate. The US saw its slowest pace of monthly job gains this year in September with just 194,000 jobs added. More job seekers exited the labor pool last month so, despite the weak hiring level, the unemployment rate dropped to 4.8% from 5.2%. Wages rose 4.6% from a year earlier and initial jobless claims reached a new pandemic era low. Retail sales rose 0.7% in September when a decline was expected, existing home sales rose 7% in September and consumer confidence rose in September for the first time in three months. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 4.4% in September from the previous year, the fastest pace in 30 years. Core prices rose 3.6%. Third quarter GDP slowed to 2.0%, the weakest growth rate since the pandemic recovery began last summer. Oil continued to climb, rising 11.4%, to finish the month at $83.57 a barrel as demand is high and supply is limited.

Foreign stocks climbed in October on better than expected earnings results. European companies that have reported earnings to date have posted over a 50% jump in earnings compared to a year ago. The ECB said at the conclusion of its most recent meeting it would stay the course with current policy. It was not planning to cut asset purchases sooner than planned and they do not currently expect to raise their benchmark interest rate next year. Similarly, the Bank of Japan maintained its current benchmark interest rate policy. However, others are making adjustments to become less accommodative. The Bank of Canada said it could raise its benchmark interest rate as soon as April and the Bank of England is considering an interest rate increase in November. OPEC+ agreed to continue to increase production in gradual steps and not accelerate production as many had expected. Emerging markets trailed developed markets over the month and year to date.

Bonds fell in September as the Fed moved closer to reducing its support for the economy and inflation concerns remained at the forefront. The Fed’s meeting minutes from their September meeting showed that it was prepared to begin curtailing its bond buying program in November with a potential end mid next year. They also could raise interest rates over the second half of next year. In public comments Fed Chief Powell said inflation risks have increased and that he is more concerned about its impacts. The 10-year Treasury yield approached the highs of the year seen in March before ending the month at 1.55%, up from 1.52% in September. Muni bonds were the top sector for the month and year to date. Shorter term bonds topped longer term bonds in October and for the year to date.