US stocks sharply rebounded in October as investors looked for signs that the Federal Reserve might soon slow the pace of its interest-rate increases. As of the end of October, 85% of S&P 500 companies posted earnings and 70% reported earnings above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%. Economic news was mixed over the month. Job growth slowed in September, with US employers adding 263,000 jobs, below the 275,000 estimate and the 315,000 added in August. The unemployment rate fell to 3.5%, below the 3.7% estimated. The producer-price index increased by 8.5% annually in September, which was a slight deceleration from the 8.7% in August. CPI increased by 8.2% in September, slightly above the expected 8.1%, down from 8.3% in August and 9.1% in June, which was the highest inflation rate in four decades. Core CPI, which excludes food and energy, rose by 6.6% in September above the 6.5% estimate. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.2% in September, the same as in August. The U.S. economy grew in the third quarter but showed signs of a broad slowdown. US GDP grew, after declining in the first half of the year, at a 2.6% annual rate in the third quarter. Sales of existing homes in the US fell for the eighth straight month in September, the longest streak of declines in over 15 years, as higher mortgage rates continue to cool the housing market.
Foreign stocks also rebounded in October amidst hopes that rising recession risk would cause central banks to change course. The Bank of England was forced to step in and buy longer-term bonds to calm the British bond and currency markets after newly elected government officials introduced policies that were counter to the BOE’s attempts to reduce inflation. The U.K government reversed course, forcing U.K. Prime Minister Truss to resign after just six weeks on the job. UK inflation rose 10.1% in September, slightly higher than the 10% estimate. The European Central Bank (ECB) raised interest rates by 0.75% to 1.5%, the highest level in more than a decade, but signaled mounting concerns about economic growth. The Eurozone’s headline inflation rate hit 9.9% in September, up from 9.1% in August. China’s GDP grew by 3.9% in the third quarter, above the 0.4% increase in the second quarter and the 3.4% estimate. Oil prices moved higher in October ending the month at $88.37 per barrel, up from $79.49 to end September. Developed markets topped emerging markets over October, the year to date, and trailing year.
Interest rates increased in October as bond markets price in the future rate increases of the world’s central banks. The Federal Reserve is likely to raise its key rate by 0.75% for the fourth consecutive time at the November meeting. Some officials have signaled the desire to both slow down the pace of increases and to stop raising rates early next year to see how their moves are slowing the economy. The yield on the 10-year Treasury increased in October ending at 4.07% up from 3.83% at the end of September. The rate for a 30-year fixed-rate mortgage topped 7% for the first time in 20 years. US agency bonds were the top performer for October and the year to date and shorter-term bonds outpaced longer-term bonds for October and the year to date.
|Index Performance||October||Year to Date||Trailing 12 Months|
|US Stocks (Russell 3000)||8.20%||-18.44%||-16.52%|
|Foreign Stocks (FTSE AW ex US)||2.93%||-23.69%||-23.96%|
|US Bond Mkt. (BBgBarc Int. Gov/Cred)||-0.44%||-10.02%||-10.03%|
|Municipal Bonds (BBgBarc 1-10 Yr Muni)||-0.26%||-7.96%||-7.53%|
|Cash (ICE BofA ML 3-Mo T-Bill)||0.16%||0.76%||0.78%|