The stock market finished higher for the last four weeks of October, developing a modest breakout at 3,038 for the S&P500. The previous high of 3,025 on July 26th was finally pushed through.
For October, the Healthcare sector led performance at +5% for the month. Technology and Telecommunications were +3.81% and +2.73% respectively. Energy lagged at -2.26%.
S&P500: October +2.04%, YTD +21.17% DOW: October +0.48%, YTD +15.94%
NASDAQ: October +3.66%, YTD +24.97% Russell 2000: October +2.57%, YTD +15.86%
Improved Market Turn
Stock prices finally muddled through long standing highs in the averages. The third Fed rate cut created potential support for the economy. Corporate earnings in Q3 were not great but acceptable. On average, down roughly -3% for the quarter.
A recent Barron’s poll for market expectations concluded with only 27% bullish prospects, the lowest level in 20 years. The somewhat erratic trade with China calmed, developing optimism for a positive conclusion. The U.S. consumer benefits from higher asset prices; i.e. stock prices. Home prices increased +1% in September and are +6% YTD.
The mood of markets has shifted with this support. The assumption is that central bank backing will start to take hold in three to six months out, resulting in improved corporate earnings. Our expectation is earnings in the +4% range for 2020.
Fixed Income
The 10-Year U.S. Treasury yield has declined 36% since January 1st, leading to lower interest rates across the board. As we all know, when yields decline pricing gains in bonds take place.
Our clients’ fixed income portfolio gains have been materially enhanced with higher bond prices layered on top of portfolio equity gains.
Towards Year-End
The Fed has signaled a pause in further rate cuts but remain importantly accommodative. The market tone has turned. It is now supporting the view that global central bank stimulation will help promote more promising economic results starting in the 4th quarter.
The market question develops; Are we now pulling stock price increases forward, setting up for a pullback? Time will tell.
We have been participating in the improved market by purchasing equities which had already corrected and are well down from their respective highs. A positive but cautious strategy.