Weekly market update
Octo-Bear has been a horrible month for stocks, and it can’t end soon enough. Lately, if the markets have been open, they have been down. Nothing like wiping out the entire strong YTD gain on the Dow and S&P 500 to change sentiment – now if you include dividends, they are still positive. And, the narrative of “interest rates are rising for the right reasons” has simply vanished.
The NASDAQ is having the worst month since 2008 and at the same time had their best one-day session since 2011. Hint – you typically see some of the biggest rallies in bear markets.
So, what’s bothering the markets?
- FED rate hikes – Gone are the days when the FED was a reliable backstop for the markets. They have raised interest rates eight times in this cycle and showing little inclination of stopping.
- Earnings worries – Earnings have been good – BUT – as I have said, it is all about guidance. So far this earnings season, “tariffs and trade wars” have been included in forward guidance by more than 35% of those reporting.
- Slowdown in China – Speaking of trade wars and tariffs – China’s economy has hit a brick wall and growing at the slowest pace in 9 years. They PBOC is taking steps to stimulate their economy in light of.
- Housing market slowdown – I have spoken about this for weeks if not months. Whether it is a labor shortage, lack of supply and/or now higher rates, the housing market is ugly. Talk to some of your realtor friends – they’ll tell you.
- Market Valuations – this goes along with concerns over trade and tariffs, but speaks more to peak earnings and a slowdown to come and if this is true stocks are pricey.
- Problems in Europe – Your choice – tariffs/trade, a stall in Brexit negotiations or Italy’s budget concerns or a porridge of all of them, Europe is struggling.
- Inflation worries – it is not rampant but it is out there.
- Trade war – Caterpillar and 3M, two big industrial companies, disappointed Wall Street with their guidance and a lot of that blame can be assigned to higher material and shipping costs -think tariffs and oil prices. Input cost inflation accelerated to its sharpest since September 2013 due to pass through of tariffs, alongside rising fuel bills and higher borrowing costs.
October has been a rough month for equities, but then again, it’s historically been one of the most volatile periods of the year. October is known for volatility, and we’ve sure seen it so far. In fact, by many measures, October is poised to be one of the worst months in years. The S&P 500 Index has had two separate six-day losing streaks this month for the first time in history. That pretty much sums it up.
Nobody’s saying the market can’t bounce back — but it’s hard to deny the ground has shifted.
Now on to some good news.
Q3 GDP came in at 3.5%, The PCE price index (Fed’s preferred gauge of inflation) rose +1.6% in Q3, down from +2.0%. Core PCE (ex food and fuel) rose +1.6%, down from +2.1%. No inflation alarms ringing here. That PCE is exactly where it was in January.
Consumer sentiment is still holding at the highs.
Jobless claims continue to hover at multi-decade lows.
So, look at this week, we will be watching the continued flow of earnings and see if the pattern holds when companies report better and get sold off and if you miss expectations – hammered.
We get the September jobs report and we really need a good one. We will also get personal income and spending – these are big.
We will also have our eyes on the continuing pegs in the wall of worry so stay tuned and we’ll keep you posted.
