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Market Summary
Stocks closed lower in October as Wall Street couldn't maintain the momentum from September's strong showing after the Fed lowered interest rates. Equities began October on an upswing on the heels of a better-than-expected jobs report. In fact, during the first half of the month, the Dow and the S&P 500 reached record highs. However, investors began moving away from risk as the unrest in the Middle East intensified and sentiment grew that the Fed may not cut rates in November.
Inflationary data showed price pressures edged higher but came within expectations. Growth of the U.S. economy continued at a modest pace. Job growth in September far exceeded expectations after adding 254,000 jobs. The Fed's 50-basis-point decrease in interest rates probably played a large part in the spurt in job growth. However, the latest jobs data also will likely encourage tempering the pace of further rate cuts. New weekly unemployment claims decreased from a year ago, while total claims paid increased.
With about 37% of the S&P 500 companies reporting, third-quarter earnings results have been mixed. While the S&P 500 reported earnings growth for the fifth straight quarter, it was the lowest growth rate since the second quarter of 2023. Of the companies reporting thus far, roughly 75% have indicated actual earnings per share (EPS) above estimates, which is below the 5-year average of 77% but equal to the 10-year average of 75%. Companies in the financials and consumer discretionary sectors were the largest contributors to the increase in overall earnings growth thus far. On the other hand, earnings lagged from companies in the industrials, health care, and energy sectors.
Rising mortgage rates cooled real estate sales over the past few months. However, with rates gradually falling and inventory increasing, the home sector is expected to bounce back. Industrial production retracted in September from August, which saw a 0.3% decline. Manufacturing output decreased 0.4% in September and was 0.5% below its year-earlier level. This trend was further endorsed by purchasing managers, who reported manufacturing continued to slow in September. On the other hand, the services sector rose modestly higher.
Eye on the Week Ahead
All attention will be focused on the results of the presidential and congressional elections in early November. In addition, the Federal Reserve meets this month. After lowering the federal funds target rate range by 50.0 basis points in September, it is questionable whether an additional decrease is in the offing in November. However, the Fed meets again in December and may consider an interest rate adjustment at that time.
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