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Ugly October Market Thoughts Thumbnail

Ugly October Market Thoughts


Goodbye to an ugly month of October in the market!  I thought I would take a few lines to cover some points about the market as October was a bit of a wild ride.  Now, your official disclaimer – I do NOT like writing these types of articles.  Partially because it means the market pulled back, but the bigger reason is I do not consider myself just a broker/financial advisor.  I am a financial planner, CFP® to be exact, and I look at the whole picture.  While the investment returns of my clients’ are important, so is their estate planning, taxes, 401k allocations, and the rest of the comprehensive wealth management picture.  However, I have been having a few conversations recently specifically about the market and thought it was time to rotate my job hat to that of financial advisor.

  • The Fed updated the “Probability of US Recession Predicted by Treasury Spread” and it now reads a 14.1197% chance of a recession in October 2019.  I don’t recall the number for the start of October, however, it wasn’t much different than this. 
  • The S&P500 had its worst month in 7 years as it dropped 7%.  The Nasdaq index fared worse as it dropped 9% in October.Remember, the Nasdaq is more tech weighted.
  • Before I forget, I am writing this on Friday morning.  As of now, the S&P500 has gained more than 1% the last three trading days.  It’s been over two years since that has happened.
  • Don’t get too excited thinking the coast is all clear.  I mean it may be, but we are still below the 200-day moving average.This is simply the average of the S&P500 over the last 200 trading days.  It sure would be nice to get back above this technical level.
  • So, what has been driving the market?  Below are a few key items:
    • The month began with the Fed Chair hinting rate increases would continue.
    • Mortgage rates continued to rise and reached a 7-year high.  This has definitely pushed some buyers who were on the fence off of it.
    • Some bad housing start numbers were reported.
    • Rumors about tariffs continue roll out.  Unfortunately, these rumors move in just about every direction (on, off, paused, under discussion, etc).
    • There is an underlying current related to the upcoming midterms too, which is normal this time of year. 
  • I mentioned above how the Nasdaq has been beaten up more than the S&P.  Well, that sector still has it better than anything related to construction. The S&P500 Materials sector was down over 16% in October!
  • I must have jinxed the market by mentioning how we were at such a long streak without moving more than 1% in either direction. Well, the first 4 days of this week the Dow gained over 1,200 points.  Just on Monday, the difference between the day’s high and low was 900 points.  At one point, the S&P500 was 11.5% below its high from late September.
  • Even with these recent increases, we are still 1% below the 200-day moving average. 

A couple of final points.First, while I have been hearing more comments of “my advisor said there will be a recession in the next 6-18 months,” I’m not yet seeing the data.  Maybe these wide-range estimates (really, 6-18 months) are based on some data, but my guess is they are just hunches from some old school brokers/advisors.  It doesn’t mean they won’t be proven right, however, the data I follow (RSI, MAC-D, SMAs, and more) isn’t confirming anything yet.Second, I saw my first blip last night that retailers are starting to estimate lower sales for the holidays.This will definitely be something I keep my eyes on.  Finally, this is a reminder it is important to understand the overall investment portfolio you have.  Odds are you are not 100% invested in the S&P500 so the headlines in the paper, on TV or online about what the Dow or S&P500 did that day do not fully represent what your portfolio has done. 

Actually, my final-final point.  As I said at the beginning, I do not like writing articles like this.  One other reason I did not mention at the beginning is because I already kick out weekly commentary so sometimes this feels redundant.The commentary is for clients only though.  I save the best stuff for them😊