U.S. and international stock indices once again posted gains for the month of October — the S&P 500, Dow Jones Industrial Average, NASDAQ, Russell 1000, Russell 2000, and Russell 3000 each hit all-time highs. Large cap stocks, as measured by the S&P 500, have increased every month since the election and are now up just over 20% over that time period. The S&P 500 increased 2.3% for the month. Small cap stocks, as measured by the Russell 2000, increased a more modest 0.85%. Growth stocks increased 3.69%, while value stocks increased 0.68%. International stocks also increased during October, with developed international stocks (as measured by the MSCI ACWI ex US Index) increasing 1.89% and emerging market stocks increasing by 3.51%.
Bonds were mixed during October as interest rates increased across the yield curve, with the biggest move occurring in the one- to three-year maturity range. The yield on the benchmark 10-year Treasury increased five basis points to 2.38% during the month. The Federal Open Market Committee (“FOMC”) will conclude its two-day meeting on November 1st, and no rate change is expected. The last FOMC meeting of the year is scheduled for December 12-13, and Fed funds futures are currently indicating an 82.8% probability of a rate hike at that meeting. The long awaited unwinding of the Fed’s balance sheet began in October, as $6 billion of maturing treasuries and $4 billion of mortgage backed securities (“MBS”) principal payments were not reinvested during the month. The same level will be allowed to “roll off” the Fed’s balance sheet in November and December and that level will increase to $20 billion in January ($12 billion in treasuries and $8 billion of agency and MBS). The Bloomberg Barclays Aggregate Bond Index increased by 0.06% for the month as investment grade corporates increased 0.40% and treasuries declined by 0.12%. High yield bonds hit new highs and increased by 0.42% for the month. Municipals increased by 0.24%.
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New record highs were set once again in October as the S&P 500, Dow Jones Industrial Average, NASDAQ, Russell 1000, Russell 2000, and Russell 3000 all eclipsed their prior peaks during the month. The S&P 500 has increased just over 20% since the election and has not even had a correction of 3% in 361 days, the second longest such run since 1928. Growth stocks outperformed value stocks and large cap stocks outperformed small cap stocks for the month. Developed international stocks trailed their large cap U.S. counterparts, while emerging markets outpaced the S&P 500.
FIXED INCOME MARKETS
Interest rates increased across the yield curve for the second consecutive month. The yield on the 10-year Treasury increased five basis points in October to 2.38%. The Bloomberg Barclays Aggregate Bond Index posted a modest increase in value for the month. Credit positions were once again rewarded as corporate bonds increased in value and high yield bonds hit record highs, while treasuries posted losses. Municipal bonds advanced modestly.
The economy rebounded in September from August’s hurricane-related slowdown. The ISM Manufacturing Index rose to its highest level since May 2004 and the ISM Non-Manufacturing Index hit its highest level since August 2005. The advance estimate of third quarter real gross domestic product (GDP) surpassed expectations and registered 3% growth. This marks the first time the U.S. has logged two consecutive quarters of GDP growth in excess of 3% since 2014. New home sales spiked to their highest level since October 2007 and retail sales were the best since March 2015. Job creation disappointed during the month, as non-farm payrolls lost 33,000 workers. On the flip side, unemployment reached 4.2%, the lowest level since January 2001. It is likely both these numbers were impacted by the hurricanes. Consumers remain upbeat as reflected by the Conference Board Consumer Confidence Index, which is at its highest level since December 2000. The Federal Open Market Committee (“FOMC”) will conclude its two-day meeting on November 1st and no rate change is expected. The last FOMC meeting of the year is scheduled for December 12-13 and currently Fed funds futures are indicating an 82.8% probability of a rate hike at that meeting.
|Retail Sales ex Auto & Gas||Sep||0.40%||0.50%||-0.10%||0.10%|
|PPI MOM ex Food & Energy||Sep||0.20%||0.40%||0.10%|
|PPI YOY ex Food & Energy||Sep||2.00%||2.20%||2.00%|
|CPI MOM ex Food & Energy||Sep||0.20%||0.10%||0.20%|
|CPI YOY ex Food & Energy||Sep||1.80%||1.70%||1.70%|
|New Home Sales||Sep||554,000||667,000||560,000||561,000|
|Existing Home Sales||Sep||5,300,000||5,390,000||5,350,000|
|Durable Goods Orders||Sep (P)||1.00%||2.20%||2.00%|
|S&P CoreLogic CS 20-City YOY||Aug||5.93%||5.92%||5.81%||5.83%|
|GDP Annualized QOQ||3Q (A)||2.60%||3.00%||3.10%|
|Univ. of Mich. Sentiment||Oct (F)||100.7||100.7||101.1|
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