October Market Overview

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All major equity indices posted gains for October, including the S&P 500, which climbed a very respectable 2.2%, bringing the YTD return to 23.2%.

Recall that markets began the month with heightened volatility following some concerning economic data that highlighted a slowdown in U.S. manufacturing and a payroll report that disappointed investors. However, markets turned positive on renewed hopes for a “phase one” partial trade deal with China, positive developments on Brexit, and third quarter earnings reports that were largely well received.

Most major fixed income indices were also slightly positive for the month of October as investors anticipated another rate cut from the Federal Reserve, which came to fruition at the end of the month. While we appreciate the rationale for the rate cuts (to stimulate investment), we have questioned whether these moves would have the intended effects in light of the continued trade uncertainty. Thus, we are encouraged at the prospect of at least a partial trade deal and appreciate the Fed’s posturing coming out of the October meeting, which suggested it is likely done cutting rates for now.

In terms of economic data, confidence in U.S. manufacturing rose as measured by the U.S. ISM manufacturing index, which – at 48.3 – was up slightly from the prior month. While still contractionary, the fact that the ISM stabilized rather than deteriorating further was a clear positive following several consecutive months of decline. Importantly, the U.S. consumer remains strong – and the October jobs report handily beat expectations with 128,000 jobs added, versus the forecast for 85,000.

Although there were several encouraging developments last month that drove markets to record highs, we maintain a healthy degree of skepticism surrounding trade negotiations and have a moderate expectation for some progress, but not an outstanding outcome. Regardless of the details, we believe a resolution to the trade dispute would be a favorable development for the global economy as it would remove the uncertainty that has paralyzed corporate decision making – and thus we believe this would also be viewed favorably by the markets.

The monthly Market Overview is written by two members of MACRO’s Investment Committee: Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.

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