October 28, 2024

“Ask not what your country can do for you, ask what you can do for your country.”

John F. Kennedy

As we enter the last week of this Presidential election cycle, I thought it appropriate we consider our obligations as citizens and remember to vote, On a lighter side, Happy Halloween to all. Once a high priority day with my 7 sons, now not so much! (However, the grandkids are picking up the slack.) Last week the major markets basically took a breath and began digesting the third quarter earnings results, but first, here are the numbers. The S&P 500 was off .85%, the Dow Jones Industrial Average took it on the chin losing 2.56%. The Nasdaq recovered by last Friday, finishing the week up .34%. Internationally, the FTSE 100 surrendered 1.01% and the MSCI-EAFE was down slightly .07%. The 2-year treasury paid 4.01% and the 10year saw a 3-month high paying 4.242%.

So, what happened? The market had its first losing week since early September. As Barron’s Conner Smith reports, The Nasdaq Composite is riding its longest weekly winning streak of the year, but the rest of the market is jittery in the face of rising bond yields. The tech-heavy index gained 0.6% last Friday to lock in its seventh-straight week of gains. It’s up nearly 11% over the past seven weeks and is gaining ground on its July 10 closing high. The index did briefly hit 18,690.01, which is its highest trading level on record. The S&P 500 was more mixed. It fell 0.03%, and only 150 stocks in the index rose on the day. Things would have been worse if not for some big days from some key stocks: Just look at the Dow. The Dow Jones Industrial Average fell 0.6% and extended its losing streak to five days in a row. The last time the Dow closed higher was a week ago, when it marked a record close. Technology stocks bucked the trend last Friday, and the Magnificent Seven group continued to live up to their nickname. Of the group, Apple was the biggest laggard with a decline of 0.4%. Tesla led the pack with a gain of 1.6%. The rest were up between 0.8% and 1.6%. Tesla’s blowout earnings report kicked off earnings season for that group earlier last week. This week will feature reports from five of the seven: Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft. The bar couldn’t be higher, with Tesla setting the tone and most of the group sitting on elevated valuations and making market-beating gains this year. The stock market was poised for a broad rally for much of last Friday morning, but Treasury yields spiked higher. Rising bond yields weighed on rate-sensitive sectors like utilities for much of the week.

And What is the Fed up to? Barron’s Jacob Sonenshine writes that the yield on the 10-year Treasury note rose to 4.2% from 4.08% this past week. Jacob writes: The rise is likely a reflection of the fact the Federal Reserve will cut interest rates fewer times than investors had thought after September’s Federal Open Market Committee meeting, a result of inflation being above its target and a job market that has grown faster than expected.

Also, Donald Trump’s chances of winning the presidential election have risen in the past few months, according to RealClearPolitics. The concern on the street about a Republican victory is over the use of tariffs, tax cuts and change in foreign policy ending reckless spending.  This does not surprise me as the street loves status quo and crony capitalism, (please remember the market reacts to money flow more than economic numbers) what they fail to understand or more likely will not admit is that the Trump economic approach will cut into the spending, further, reforming and reducing or replacing many parts of the Federal government which will pay for tax cuts, reduce inflationary pressure, and by unleashing the energy power the US possesses, will quickly pay immediate dividends in the economy.

The risk for the market this week is a concern, including earnings and economic data. The earnings deluge will continue with over 100 reports from S&P 500 Companies. On the economic front, reports on third-quarter GDP, the PCE price index, and labor markets will drive the action. The risk is that weaker-than-expected data will raise the fear of a recession. Hot data is good news any way you look at it. The Fed may back off on the pace of interest rate cuts because of hot data, but economic and earnings growth will offset it and continue to drive stocks higher.

How is it playing in Peoria? Growing confidence among Republicans in a victory for Donald Trump helped push a survey of consumer sentiment to a six-month high less than two weeks before the U.S. presidential election. The first of two readings in October of consumer sentiment rose to 70.5 from 70.1 in the prior month, the University of Michigan said last Friday. It’s the highest reading since April.

The Israeli response to the Iranian missile attack commenced last week, Israeli officials confirmed last Friday night that their air force bombed military targets near Tehran in response to Iranian missile strikes.  140 Israeli planes targeted missile production facilities near Tehran, along with Iranian air defense systems, drones, and ballistic missile transmitters. The measured response was meant to send a clear message to Tehran. If Iran got the message this should have little impact to the US markets this week.

Finally, on the inflation front, From Barron’s:” fears of inflation being harder to vanquish than hoped are hurting Treasuries even as the strong economy buoys high-yield debt. Bond investors are worried that the Federal Reserve may not be able to lower interest rates as quickly as forecast because of stubborn inflation. Along with the latest measure of economic growth, investors will also get the September print of the Fed’s preferred inflation gauge next Thursday, Oct. 31. An October jobs report complicated by hurricanes and labor actions will follow on Nov. 1.

So please enjoy the holiday and remember to vote.

Mike