October 2024 - Market Update

The Friedenthal Team

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Key Observations

The market gave up all of its early gains in October after the PCE, the Fed’s preferred inflation gauge, came in higher than expected.
The US aggregate bond index was down 2.48%, driven by rebounding intermediate-term yields.
The S&P 500 ended October down 0.92%. Financials was the best performing sector while Health Care was the worst.
Several large US banks have announced that we have achieved a soft/no landing scenario, supported by various economic data releases in October.
In a month where both stocks and bonds declined, Gold had a great run ending up 4.31% from the Sep-30 close.

Data Dashboard

Stock Market

Markets ended the month down due to a broad market selloff, largely driven by tech. Global equities underperformed the US. Developed International stocks are down 5.43% and Emerging Markets are down 3.30%.

After an initial stimulus boost and an inflow of capital from foreign investors, Chinese stocks saw a sizable dip, amid higher volatility.

Oil markets are usually very susceptible to geopolitical tensions in the middle-east. Although there’s been some fluctuations, the Israel-Iran conflict hasn’t really destabilized oil prices. Defense and Aerospace stocks, which had been rising since September, dipped towards October end. The markets viewed Israel’s bombing of Iranian oil and nuclear facilities as a modest attack, and as a sign of potential de-escalation from an all-out war scenario.

Within US markets, Financials, Communications and Energy were the only positive sectors.

Microsoft & Meta reported better than expected quarterly results, but forecasted slower growth, sending both stocks down. The big tech rally is finally slowing down, allowing the rest of the market to catch up.

October Monthly Returns (by US Sector)

Bond Market

Economic Data for October was a large driver in resetting bond yields. After hitting a low of 3.6% in mid-September, the 10Y treasury yield is back up to almost 4.4% by October-end, with bonds in general giving up their modest gains.

The European Central Bank (ECB) announced yet another 25bp rate cut in October, continuing the global trend favoring economic expansion. All eyes are on the Fed for the November FOMC meeting. Growing concerns over the US deficit & an increased market optimism on the soft/no landing scenario, is pushing rates higher. Swaps markets are currently pricing in a 97% probability of a 25bp cut in November.

With intermediate-term rates bouncing back, the high yield spreads further narrowed to 2.75%. We continue to be cautious on riskier corporate bonds.

Economics

Markets are eagerly watching for the FOMC meeting on 7^thNov, and swaps are currently pricing in a single 25bps cut.

Core CPI (inflation excluding food & energy) came in at 3.30% YOY, and the Fed’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) index came in at 2.65% YOY. The unemployment rate eased for a second month in a row to 4.10% in October, and the story for a soft/no landing keeps getting stronger.

The average 30Y fixed rate mortgage is back up to 7.28%, driven by rising intermediate-term yields. This could put pressure back on housing market activity, which has been buoyed by low supply.

Markets are experiencing increased volatility as the US Presidential election day comes closer. The VIX Index (also referred to as the Fear Index), hit 21.92 on 31^st Oct, up from 16.73 at the end of September.

October Economic Dashboard

Tactical Trades

We have overweighed our tactical stock portfolio in IT & Financials and underweight in Materials, Energy & Consumer Staples.

Our tactical ETF portfolio added Aerospace & Defense, Uranium & US Global Jets in October. We also focused on lowering the duration on our fixed income tactical portfolio, to focus on maximizing yields while reducing interest-rate risk in the short-term.

As always, reach out with any questions or concerns.

Thanks,

The Friedenthal Financial Team