October 2024 Review and Outlook


Executive summary:

  • The major averages closed lower for the month, remaining below all-time highs
  • Election and geopolitical headlines remained at the forefront
  • Mixed economic signals kept investors cautious
  • Earnings season reached the half-way point with varied results to date
  • Gold continued to breakout with rates backing up despite Fed rate cut

Index performance for October:

Stocks fell in October with the S&P 500 ending a five-month streak of gains and the Nasdaq Composite marking its first monthly drop in three months. The small-cap Russell 2000 also fell, continuing the trend of underperforming the S&P 500 for the third consecutive month. Semiconductors led the declines, while cosmetics, homebuilders, housing-related retail, and China tech also slid. Treasuries saw significant declines, with yields increasing sharply across the curve. The 2-year yield rose over 50 basis points, returning to levels above 2.15%, while the 10-year yield climbed close to 4.30%. The dollar index rose 3.1%, marking its first gain in four months, while gold continued its upward trend with a fourth-straight monthly increase. Other assets like Bitcoin and WTI crude oil also saw gains, with Bitcoin futures up 11% and crude oil rising by 1.6%.

The primary focus this month was the increase in Treasury yields, which saw the largest selloff since September 2022. Contributing factors included increased scrutiny over the debt and deficit, optimism around a soft or no-landing scenario due to strong economic data and rising political uncertainty. Bond market volatility also surged, with the BofA MOVE index reaching a year-to-date high, potentially impacting both Treasuries and equities moving forward. Despite the uptick in yields, equities showed resilience, with the S&P 500 ending only slightly lower for the month with economic growth and revenue outlooks acting as support. However, concerns remain over inflation, Treasury supply, and geopolitical uncertainties, along with challenges in areas like AI investment costs, housing, and consumer sentiment.

Economic data this month presented a mixed picture, with some strong signals in the labor market. The September payroll report exceeded expectations, coming in at 254,000 jobs versus the consensus of 150,000, and previous months were revised higher by a combined 72,000 jobs. However, other labor market indicators showed some softening, as JOLTS job openings fell to their lowest level since January 2021. Consumer confidence data revealed a slight uptick, breaking an eight-month decline in labor market sentiment. Inflation data added complexity, with September’s core CPI running hotter than anticipated, though final Michigan survey data showed a decline in one-year inflation expectations to year-to-date lows, and October’s preliminary PMI data indicated that prices charged by businesses were at their lowest since May 2020. This mix of robust growth signals and tentative disinflationary signs has influenced expectations around Federal Reserve policy, leading to a re-evaluation of rate cut probabilities for the months ahead.

Despite all the mixed signals this month, the biggest overhang may be the upcoming election as market sentiment has been impacted by increasing political uncertainty. Investors are keeping a close watch on policy stances and potential impacts on trade, fiscal policy, and regulatory changes, particularly as polls tighten. The possibility of a shift in administration or legislative balance raises questions about future approaches to economic stimulus, tax policy, and spending priorities, which could affect sectors ranging from infrastructure and technology to healthcare. Market volatility has historically increased in the lead-up to elections, as investors weigh possible outcomes, and this cycle is no exception. The removal of election-related uncertainties could provide clarity and possibly relief to the markets, depending on results, setting the stage for post-election positioning and potential market re-alignments.

Sector performance total return for October:

Earnings commentary:

With 70% of S&P 500 companies reporting earnings for Q3’24, the results have been mixed. To date, 52% of companies have reported a beat on revenues, with 30% missing estimates, and 18% matching. The average beat was 1.5%. EPS reports on the other hand saw companies beating nearly 75% of the time, below the 5-year average of 77% but in line with the 10-year average. Health Care stocks reported the largest top line upside with an average beat of ~3.3%, followed by Financials at 2.2%. Communications stocks saw the largest upside surprise in terms of EPS with average surprise of 14.1%, followed by Consumer Discretionary with 11.8%, and Financials with 9.3%. In aggregate, the 7.1% earnings above estimates are below the 5-year average of 8.5% but above 10-year average of 6.8%.

On the growth front, 72% of companies have reported revenue growth, with 23% declining, and 5% flat, with an average growth rate of 5.3%. Energy and Consumer Staples companies took the biggest hit with only 43% and 46% respectively reporting growth. Energy and Industrials reported negative revenue growth of -4.7% and -0.2% respectively. Contrarily, Communications led the sales growth story with an average print of 9.8%, followed by Health Care with 9.7%.

Earnings growth was in line with sales growth as 71% reported positive growth, 28% cutting, and 1% in line, with an average EPS growth rate of 8.8%. Communications and Consumer Discretionary led the way with 27.2% and 22.4% EPS growth, followed by Health Care 12.7%, Technology 10.5%, and Financials 9.2%. Energy, Industrials, and Materials posted negative EPS growth after reporting declines of 19.9%, 11.3%, and 2.1%, respectively.

Sales and earnings results by S&P sector:

2-day price reaction following earnings releases:

Fed Rate Cut Odds:

Yield Curve:

Gold:

Looking ahead:

November 2024 will go down in the history books one way or the other with the election kicking things off in the first week. If that wasn’t enough, the FOMC will then meet 2 days later at which point they are expected to cut another 25bps from the Fed Funds rate. Many investors were caught a bit off guard when they cut 50bps at the last meeting, which then saw rates immediately backup, so it will be interesting to see which way the market goes after this potential cut. There will also be a slew of crucial economic data throughout the month which will likely weigh heavily on the Fed’s December meeting. Outside of all the data, November has been the best month for stocks over the last 10 years with an average return of 3.81% for the S&P 500. During that time period, only 2021 saw stocks fall in November, so bulls will look to regain control of the market and take it to new all-time highs.

Economic Calendar:


The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an 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 STRONGLY ADVISED.



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