Clearview Portfolio Consulting October Market Recap
Key Points:
• The Federal Reserve cut their policy rate 25 basis points for the second consecutive month.
• Stocks again pushed to all-time highs during the month with the S&P500 up 17.5% for the year.
• Bonds and international stocks continue to have a strong year, rewarding globally diversified and balanced investors.
Volatility returned to the markets in October as investors worried about the shutdown of the US Government, trade tensions with China and elevated stock valuations. Despite these worries, global markets moved higher for the month. The S&P 500 gained 2.3%, notching its sixth consecutive month of positive returns. The Dow Jones Industrial average was up 2.6% while the tech-heavy NASDAQ soared 4.7%. Technology stocks were the best performing sector (+6.2%) as the demand for artificial intelligence exposure grew with strong earnings and continued investment in cloud computing and data center investments. Healthcare (+3.6%) and consumer discretionary (+2.4%) saw renewed investor interest, while materials (-5%) and financials (-2.8%) lagged. For the year, the S&P500 Index is up 17.5% when accounting for dividends. Small cap stocks gained 1.8% for the month and are up 12.4% for the year as measured by the Russell 2000.
The Federal Reserve cut their benchmark Fed Funds rate an additional 0.25% for the second consecutive month. Despite inflation above their target 2%, softness in the labor market has taken a front seat in their priorities. Because lower rates benefit borrowers over savers, the cuts are intended to stimulate the economy and create jobs. Fed Chairman Jerome Powell cautioned against further rate cuts in upcoming meetings as the committee has “strongly differing views about how to proceed.” The government shutdown is disrupting the release of economic data that the Fed needs to evaluate the health of the economy. Weaker jobs numbers may continue as large US employers incorporate more AI and automation in their processes.
International markets continued their strong year in October with developed markets up over 26% year-to-date and emerging markets gaining almost 33%. European equities inched higher while Asian markets saw strong gains from a flurry of stock buy backs in Korea. Easier global monetary policy and a weaker US Dollar also contributed to international gains for US investors.
The Bloomberg US Aggregate Bond Index, which measures a mix of Treasuries, corporate bonds and mortgage-backed securities, was up 0.6% in October. For the year the index has gained 6.8%. High yield bonds underperformed investment grade corporates for the second consecutive month, as the aforementioned risks to the economy as well as a few isolated bankruptcies may have investors moving up in credit quality.
Sources: Morningstar Direct, Merrill Lynch, Wall Street Journal, First Trust, JPMorgan