October 2024 review and outlook

executive summary:

• Major averages ended the month lower, still below all-time highs
• Elections and geopolitical headlines remain at the forefront
• Mixed economic indicators made investors cautious
• Earnings season reaches midway point with mixed results so far
• Gold continues to breakout as interest rates recover despite Fed rate cuts

Index performance in October:

Stock prices fell in October, with the S&P 500 index ending a five-month streak of gains and the Nasdaq Composite Index suffering its first monthly decline in three months. The small-cap Russell 2000 also fell, continuing its trend of underperforming the S&P 500 for the third straight month. Semiconductors led the decline, while cosmetics, home construction, home-related retail, and Chinese high-tech also fell. U.S. Treasuries fell sharply, with yields rising sharply across the curve. The two-year yield rose more than 50 basis points (bp) to back above 2.15%, while the 10-year yield rose to nearly 4.30%. The dollar index rose 3.1%, its first increase in four months, while gold continued its upward trend with its fourth straight month of gains. Other assets such as Bitcoin and WTI crude oil also rose, with Bitcoin futures up 11% and crude oil up 1.6%.

The main focus this month was the rise in U.S. Treasury yields, which saw their biggest decline since September 2022. Factors include increased scrutiny of debt and budget deficits, and optimism over soft or no-delivery scenarios due to strong economic data and heightened political uncertainty. . Bond market volatility has also skyrocketed, with the BofA MOVE index reaching a year-to-date high, which could impact both Treasuries and stocks going forward. Stocks showed resilience despite rising yields, and the S&P 500 ended the month slightly lower, supported by economic growth and the earnings outlook. However, challenges remain in areas such as AI investment costs, housing, and consumer sentiment, as well as concerns about inflation, Treasury supplies, and geopolitical uncertainty.

Economic indicators showed a mixed picture this month, with some strong signs in the labor market. September’s employment report was better than expected, with the number of employees at 254,000 compared to the consensus of 150,000, an upward revision of 72,000 from the previous month. However, other labor market indicators showed some softening, with the number of JOLTS job openings falling to the lowest level since January 2021. Consumer confidence data showed a slight increase, breaking an eight-month decline in labor market sentiment. Inflation data adds complexity, with September’s core CPI higher than expected, but Michigan’s final survey data showed one-year inflation expectations fell to year-to-date lows, with October PMI Preliminary data showed prices charged by businesses are on par. This combination of solid growth signals and tentative disinflationary signs will influence expectations about Federal Reserve policy in the coming months. This has led to a reassessment of the probability of interest rate cuts.

There have been mixed signals this month, but the biggest impact may be the upcoming election, as market sentiment is affected by increased political uncertainty. Investors are closely monitoring policy stances and the potential impact on trade, fiscal policy and regulatory changes, especially as opinion polls tighten. Potential shifts in the executive and legislative balance raise questions about future approaches to stimulus, tax policy, and spending priorities, with potential implications for areas from infrastructure and technology to health care. . Market volatility has historically increased in the lead-up to elections as investors weigh possible outcomes, and this cycle is no different. Resolving election-related uncertainty could provide clarity and even reassurance to markets, depending on the outcome, and could set the stage for post-election positioning and potential market restructuring. There is.

October sector performance total return:

Earnings comments:

70% of S&P 500 companies have reported earnings for the third quarter of 2024, with mixed results. To date, 52% of companies have reported beating revenue expectations, 30% were unexpected and 18% were in line with expectations. The average beat was 1.5%. Meanwhile, in the EPS report, the company achieved nearly 75%, which is below the 5-year average of 77% but in line with the 10-year average. Healthcare stocks posted the biggest gains, averaging about 3.3%, followed by financial stocks at 2.2%. Telecommunications stocks had the largest upside surprise in terms of EPS, with an average surprise of 14.1%, followed by consumer discretionary stocks at 11.8% and financial stocks at 9.3%. In total, the better-than-expected 7.1% return was below the five-year average of 8.5% but above the 10-year average of 6.8%.

On the growth front, 72% of companies reported an increase in revenue, 23% a decrease and 5% the same, with an average growth rate of 5.3%. Energy and consumer staples companies were hardest hit, with only 43% and 46% of companies reporting growth, respectively. The Energy and Industrial sectors reported negative revenue growth of -4.7% and -0.2%, respectively. Conversely, Communications led sales growth with an average print rate of 9.8%, followed by Healthcare at 9.7%.

Earnings growth was in line with sales growth, with 71% reporting positive growth, 28% reporting declines, and 1% flat, for an average EPS growth rate of 8.8%. Communications and consumer staples led the way with EPS growth of 27.2% and 22.4%, followed by healthcare at 12.7%, technology at 10.5%, and financials at 9.2%. The Energy, Industrials, and Materials sector recorded negative EPS growth after reporting declines of 19.9%, 11.3%, and 2.1%, respectively.

S&P sales and profit results by sector:

Price reaction in the two days following the earnings announcement:

Fed rate cut odds:

Yield curve:

gold:

Future prospects:

November 2024 will go down in history in some way, with elections starting in the first week. If that’s not enough, the FOMC will meet in two days, at which time it is expected to cut the federal funds rate by another 25 bps. It will be interesting to see where the market heads after this potential rate cut, as many investors were caught a bit off guard when they cut rates by 50bps at their last meeting, and rates rose shortly thereafter. . A number of important economic indicators will be released this month, and are likely to have a major impact on the December Fed meeting. All data aside, November was the best month for stocks in the past decade, with the S&P 500 averaging a return of 3.81%. 2021 is the only time during this period that stocks fell in November, so bulls will look for a recovery. Control the market and reach new all-time highs.

Economic calendar:

The information contained herein is provided for informational and educational purposes only and should not be construed as investment advice on behalf of any particular security or overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. Advice from a securities professional is highly recommended.