Market Monitor: October End of Month Update

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • Global markets pull back in ‘red October’: Even after a rally in stocks the last two days of the month, global asset classes declined across the board in October as investors worried about rising interest rates, the continued U.S.-China trade war and slowing global growth. U.S. stocks as measured by the Standard & Poor’s 500 Index fell more than 6 percent in their worst month since September 2011, small caps and international stocks fared even worse and bonds lost value and appear headed for a rare down year. Giant growth companies were particularly hard-hit – Amazon fell 20 percent and Alphabet shed 10 percent – but growth stocks remained considerably ahead of their value counterparts for the year.
  • Corporate profit growth tops 20 percent for third straight quarter: Third-quarter operating earnings among S&P 500 companies were on pace to rise 23 percent year-over-year through two-thirds of the reporting season. The record-setting results still disappointed Wall Street, as guidance for the upcoming holiday season and 2019 was somewhat muted on concerns about the trade war and rising costs.
  • Job growth, average wages on the rise: S. employers added a better-than-expected 250,000 jobs in October and lifted wages at the fastest pace since 2009, 3.1 percent year-over-year, in the latest evidence of a robust employment market. The jobless rate stayed at 3.7 percent, the lowest since 1969. The strong data increased market expectations that the Federal Reserve will raise interest rates again in December.
Selected Market Returns

market monitor

Sources: Morningstar, Altair Advisers
Key Takeaways
  • Volatility has materially increased this fall, with the S&P 500 falling as much as 10 percent from its September 20th peak and experiencing daily moves of at least 1 percent up or down 10 times in October after zero such moves the prior three months. The period surrounding elections is historically volatile in the markets but usually does not last, regardless of the outcome.
  • The uncertainty associated with the ongoing trade war weighs increasingly on company outlooks and investor confidence. Up until now the impact of the trade battle has been minimal, but the longer it goes the worse the impact. While the U.S.-China standoff may extend into 2019, we believe after all the fits and starts that there will eventually be a negotiated resolution.
  • U.S. economic data has remained predominantly solid throughout the recent market turbulence. October saw positive monthly reports on jobs, GDP growth (3.5 percent), consumer confidence (18-year high) and inflation (holding at 2 percent); the housing market and worker productivity were comparative weak spots.
  • The 10-year S. Treasury bond yield reached 3.26 percent, the highest level since July 2011, on a strengthening economy before closing the month at 3.14 percent. The 10-year yield has been on a gradual upward path, pressuring bond prices, but will be relatively contained as long as inflation remains tame at approximately 2 percent.
  • International developed and emerging-market stocks have been adversely affected by a rise in the U.S. dollar of as much as 5 percent against a basket of other currencies in 2018. The dollar often strengthens in times of turmoil, as it did in October. We believe the rise is unlikely to continue and could reverse if trade tensions ease.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice