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Two steps nowhere, one step back. That’s basically what you could say about the entire financial markets, both bond and stock, over the last 3 months. As is typical in this proximity to the election vote, markets have taken a nervous step back. With the upcoming Fed hike likely to happen in December, with political landscapes on the move, with the OPEC meeting in November and earnings reports and a ton of economic data rolling in, markets are awaiting one of many results that could SPOOK them into a correction. That being said, we are encouraged by earnings reports and market valuations, and we expect to see markets drudge forward through the muck of information coming its way.
Last Month Performance
The S&P 500 ended the month down -1.82% while the Barclays Aggregate Bond index faltered -1.10%. Any exposure to international markets would have most likely added to the drawdown. While these levels are common in monthly doses over a calendar year, having two flat months prior has not given investors much to get excited about recently. In fact, if you look back at the last year and a half the overall US Equity markets (measured by the Russell 3000 TR Index) has ended in the same place the bond market has with a significantly greater amount of volatility(1).
Around 60% of companies in the S&P 500 have reported earnings for 3rd Quarter. So far the consensus is that it’s tracking roughly 3% YoY increase. With another 27% of companies reporting in the first week of November, all roads point towards a final number that handily beats the expectations of a - 0.7% YoY decrease. It will be interesting to see if the positive earnings reports remain shadowed by the elections, Fed rate hike in December, and energy prices(2).
We are on track for a December rate hike. With the FOMC meeting scheduled for the 1st week in November, this is little doubt that no hike happens this month but continued communication solidifies the hike in December. While markets have seemingly priced this in, there could still be some late movers and traders to come that would create some more downward pressure on the markets.
Oil prices dropped from their $50/barrel range as OPEC and non-OPEC countries continue to look for common ground. OPEC’s meeting in November should give us a little more clarity on what next year’s production levels will look like globally. Any sign of synthesis between countries in and out of OPEC should result in a positive move in oil prices.
What to say. Get out and vote. The best thing about November 8th is that we get to see the people of this great country have a voice. Many can conclude that the way our system is set up there is actually little control the individual person has over the election, especially if you reside in certain states. That being said, while the Electoral College will usher in our new president, it does not mean that the popular votes won’t be heard. Whether you are voting democrat, republican, libertarian, or third party, at the end of the day votes are counted; trends are set; and momentum is created. So take full advantage of the rights that you have, and be a part of what should be an historic day.
As always, if you have any questions at all we are here to help.
(1) Morningstar Office™
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.