Equity markets took a breather in October, with major indexes ending the month lower to end a streak of five consecutive monthly gains. Despite holding steady for most of the month, the S&P 500 faltered in the last few days of trading to close out the month down -1%. The blue-chip index is still up +21% year-to-date.
Overseas stocks gave back -5% on the month after enthusiasm over the Chinese stimulus package faded and equities came crashing back to earth, with the MSCI ACWI ex-US index now up just +9% this year.
On the fixed income side, the Bloomberg Aggregate Bond Index fell -2.5% in October as bond yields retreated, with markets pricing out two full rates cuts over the next year after inflation came in slightly hot for the month.
The bond index is up +2% for the year. The Bloomberg Commodity Index fell -2% for the month (+4% YTD) despite another record high for gold, with falling oil prices dragging the broad index lower.
Our proprietary Three Dials readings remain unchanged through the end of October, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
While volatility around next week’s election is expected, the relative steadiness of equity markets during the historically rocky months of September and October leaves plenty of cushion to dampen a downside shock for stocks.
Once the election results are digested, we’ll enter the seasonally strong holiday period, and our Momentum Dial remains Positive
- Economic Fundamentals: (Negative ❌)
The US economy added just 12,000 jobs in October, and while temporary factors such as weather and strikes impacted this print, it still came in far below consensus expectations.
Combined with a Q3 GDP report that also fell short of Wall Street estimates, our Fundamental Dial stays in a Negative position.
- Valuation: (Negative ❌)
The famous “Buffet Indicator”, measuring the value of the stock market compared to GDP, recently clipped 200% for the first time in history and sits more than two standard deviations above its long-term average, marking potentially dangerous territory for equity valuations. It is no wonder that Warren Buffett’s Berkshire Hathaway is stockpiling cash at record levels.
As such, our Valuation Dial remains Negative.
Our composite Three Dials reading remains in a Moderately Defensive position through the most recent month-end, with two dials Negative and one dial Positive.
Sources: Morningstar
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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