October Market Commentary

US stocks plunged in October as a raft of concerns drove stocks to their worst monthly performance in over seven years.  The increase in long term interest rates, geopolitical concerns, a weakening earnings outlook, and US/China trade war worries all weighed on US stock performance.  While earnings are expected to grow 24% in the third quarter, an increasing number of companies have lowered their future outlooks.  Economic news has continued to be relatively positive with the unemployment rate dropping to 3.7% from 3.9% and the number of available jobs outnumbering the number of people looking for jobs by 902,000; the highest number on record.  Inflation has remained subdued, consumer confidence hit an 18 year high, and third quarter US Gross Domestic Product rose 3.5%, above expectations.  However, on the downside the 134,000 new hires for the month fell well short of expectations, auto sales fell 6%, manufacturing activity slowed, and sales of previously owned homes fell 3.4% for the seventh straight month of declines. Oil sank 10.8% over the month, ending at $65.31 a barrel, on weakening demand and higher production.  In October, US stocks plummeted 7.36% lowering the year to date return 2.43%.

Foreign stocks plunged over the month on similar concerns as in the US surrounding global growth, a US/China trade war and corporate earnings.  Eurozone growth eased to 0.2% in the third quarter, its lowest level in over four years, with Italy weighing down the region.  In addition, Italy’s bonds were downgraded by Moody’s to the lowest investment grade rating over apprehension of the country’s budget.  The European companies that have reported third quarter results to date have fallen short of earnings and revenue estimates.  The US and China remain far apart in their trade negotiations and fears are increasing that US tariffs will jump to 25% at the end of the year.  China’s third quarter growth rate slowed to 6.5%, its weakest level of growth since the financial crisis, and below expectations.  In China, auto sales, industrial output and manufacturing have all weakened in recent months.  Developed markets outpaced emerging markets for the month.  International stocks sank 8.15% in October and are now down 10.68% for the year to date.

Bonds declined in October as interest rates climbed.  Interest rates rose across the yield curve with the 10-year Treasury yield reaching its highest level since May of 2011 early in the month, before rates eased on concerns over the global economy.  The Fed’s preferred inflation measure, the personal consumption expenditures price index, rose 0.1% in September from August.  As a result, annual inflation still remains tame and below the Fed’s 2% target.  The 10-year Treasury yield ended the month at 3.15% increasing from 3.05% to start the month.  For the month, Treasury bonds were the top performing sector and shorter-term bonds topped longer-term bonds.  The broad bond market declined 0.79% in October dropping the year to date performance to -2.38%.