October was a relatively quiet month, finishing on the plus side across all four indices. Mid-month saw the markets give back about 3% after hitting new highs. The pullback didn’t last but 3 trading sessions, and then the market promptly resumed its upward climb to new highs.
The Gold rush cooled off, seeing outflows of over $1 billion. Technology continued to be the driver of performance and investment dollars. Healthcare finally picked up street interest, and both Industrials and Materials continued to attract attention. Consumer Staples and Discretionary sectors remain laggards, and Energy bumped around the flatline.
S&P 500: Oct +2.27% YTD +16.30%
DOW: Oct +2.51% YTD +11.80%
NASDAQ: Oct +4.70% YTD +22.86%
Russell 2000: Oct +2.14% YTD +11.30%
Sector Performance YTD:
Communication Services +25.85%
Consumer Discretionary +7.21%
Consumer Staples -0.58%
Energy +3.04%
Financials +8.21%
Healthcare +4.69%
Industrials +17.57%
Technology +29.30%
Materials +2.23%
Real Estate +0.66%
Utilities +17.45%
Current U.S. Treasury Yields:
6 Month Bill 3.77%
2 Year Note 3.54%
5 Year Note 3.67%
10 Year Note 4.08%
30 Year Note 4.67%
The Economy and the Fed:
As was anticipated, Fed Chair Powell cut the Fed lending rate by 25 basis points at the October meeting. The rate now is 3.75%-4%. Powell came off a bit hawkish regarding a cut in December, stating that “it’s not a forgone conclusion.”
We still believe a December rate cut is inevitable. The month witnessed 153,000 jobs cut, marking the highest number in 22 years for October. A ramp up in hiring coming out of the pandemic, AI adoption, and cost cutting to recapture margins from tariffs have helped to fuel job losses.
The government shutdown is keeping data on the sidelines, handcuffing the Federal Reserve. However, inflation remained steady at 3.4% for October. The economy is slowing and there are clearly pockets of recession in low to middle income households. The government shutdown can only exacerbate the economic weakness.
Looking Ahead:
Q3 earnings have been good. The growth rate for the S&P 500 is now at roughly 10%. Over 300 S&P 500 companies have reported earnings, and 80% have beaten the street’s expectations. Financials, Technology and Utilities have been the biggest drivers. Remarkably, each market pullback this year, has seen dip buyers step in quickly to stem the tide.
As a reminder, the Magnificent Seven stocks represent a 37% weighting in the S&P 500. Their combined market cap is over $22 trillion, and in 2024 accounted for 63% of the S&P 500’s gains. 2025 is shaping up similarly.
November is the strongest month for the S&P 500, historically, with an average gain of 1.8%. The first week of trading, however, has seen the markets give up recent gains. Many fund managers are playing catchup for performance. Perpetual bears have been proven incorrect again this year. There is still $7.42 trillion in Money Market Funds.
Volatility has picked up with market news coming quickly during earnings reporting. We remain constructive on the market into year-end and expect positive returns for the next two months. We are staying long equities with an emphasis on large-cap growth and value as well as U.S. centric. Fixed income and preferreds round out the portfolio positioning.