Weekly Market Report: October 25th, 2024
Markets enjoyed a relatively quiet week as October draws to a close with 3Q earnings season and a modest economic calendar the primary drivers. One might be wise to enjoy the quiet before things heat up on the economic calendar next week and we’re a little over one week from the election, which may, unfortunately, mark the beginning of several weeks of political uncertainty. The S&P 500 snapped a 6-week winning streak, closing down 1% while small caps (-3%), developed international (-2.5%), and emerging markets (-1.75%) traded further to the downside. Bond yields continued to grind higher pushing the 10yr UST yield up to 4.25%, still 60 bps below levels from one year ago but up notably from October 1st level of 3.74%. Commodities (+2.7%) and the USD (+0.74%) both closed up on the week.
Market Anecdotes
- Q3 S&P 500 earnings season is 37% complete with beat rates and margins of 75% and 5.7%, respectively. Blended earnings growth stands at 3.6% and revenue growth at 4.9%.
- The recent BoA survey data has seen the likelihood of a ‘hard landing’ near its lowest level of the past 18 months with expectations of a ‘no landing’ scenario increasing notably and a clear consensus expectation of a ‘soft landing.’
- Hawkish FedSpeak narratives continued last week with futures markets continuing to moderate expectations of FOMC rate cuts, now down to roughly 1.25% (5 cuts) over the next 12 months.
- 10yr UST yields rose above 4.2% for the first time since the summer as yields continue to grind higher following the September FOMC rate cut.
- The no landing scenario likely implies higher interest rates stemming from increasing inflationary pressures which, history suggests, may present challenges to equity markets.
- Torsten Slok notes that while higher market interest rates would suggest higher corporate debt servicing costs, companies taking steps to lock in low QE and post pandemic rates have seen non-financial corporate net interest payments decrease to near record low levels.
- The dominance of the U.S. stock market relative to non-U.S. stocks has been remarkable, with the former outpacing the latter in eight of the past ten years. Looking at the next 10 years, valuations, currencies, and nominal bond yields may present challenges to a repeat.
- A long-term look at home affordability from Bianco Research reminded investors that, while first time home buyer affordability today is clearly an outlier, the ultra-low interest rate QE era may not be the best relative comparison.
Economic Release Highlights
- October U.S. flash PMI (C,M,S) registered (54.3, 47.8, 55.3), in line with the consensus forecast and prior month levels.
- October Eurozone flash PMI (C,M,S) registered (49.7, 45.9, 51.2), meeting expectations but the composite survey remained below the 50 expansionary mark.
- Durable Goods Orders declined 0.8% in September, slightly more than the -0.5% spot forecast while the ExTransportation figure beat expectations (0.4% vs -0.1%).
- The final UofM Consumer Sentiment Index was revised up from 69.0 to 70.5 while one-year inflation expectations declined from 2.9% to 2.7%.
- New Home Sales in September registered 738k, slightly above the consensus forecast (718k) and prior month (709k).
- Existing Home Sales in September came in relatively in line with the spot forecast (3.84M vs 3.90M), -1% MoM and -3.7% YoY.
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