October 2023 Stock Market Commentary
Ethan Pollard | November 06 2023
Markets logged a third consecutive monthly decline in October, with both stock and bond prices continuing their slide in the wake of renewed geopolitical uncertainty, this time around the war between Israel and Hamas.
The S&P 500, a benchmark for large cap US stocks, fell -2.1% on the month, briefly entering correction territory after falling 10% from its July high before rallying into month-end.
The index is up +10.7% year-to-date. The more volatile Russell 2000, which measures the performance of smaller companies, lost another -6.8% in October to send the index into negative territory for the year at -4.5%.
Overseas equities fell -4.1% this month, with the MSCI ACWI ex-US index now up just 1% in 2023. Within fixed income, ten-year treasury yields continued to soar, briefly topping 5% as markets grappled with the Fed’s “higher for longer” rate regime.
The Bloomberg US Aggregate Bond Index fell -1.6% in October and is now down -2.8% year-to-date.
Commodity prices were modestly higher on the month, led by a safe-haven bid for gold amidst the conflict in the Middle East, with the Bloomberg Commodity Index gaining +0.3% for the month (-3.2% YTD).
Our data-driven Three Dials readings were once again unchanged during the month of October, which we outline below:
- Market Sentiment and Momentum: (Positive ➕)
The S&P found strong technical support after entering correction territory, suggesting that the current rally still has legs and could continue into year-end.
While much may depend on the developing situation in Israel and the Fed’s posturing around the future path of interest rates, for now our Momentum Dial remains in a Positive position.
- Economic Fundamentals: (Negative ❌)
Our first look at US GDP in the third quarter showed 4.9% annualized growth, its strongest quarter since 2021. Consumers have been undeterred by higher rates as spending remains robust, although survey data suggests that future uncertainty may curtail these high rates of spending.
As of now, our Economic Dial remains Negative.
- Valuation: (Negative ❌)
It is no coincidence that the recent three-month selloff in equities has coincided with 10-year treasury yields jumping from 4% to 5%, as higher long-term rates make stocks appear more expensive.
While US corporate earnings have stabilized, valuations remain stretched, which leaves our Valuation Dial in a Negative position.
Our composite Three Dials reading remains in a Moderately Defensive position, with two dials Negative and one dial Positive.
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