Market Insights

Stocks just declined for the first time in six months, thanks to weak guidance from Microsoft and Meta Platforms.

The S&P 500 spent most of October above the level where it ended September. However it plunged in the final session, giving the index a 0.7 percent drop on the month. It was the first decline since April and only the second negative month since the equities began a sprint higher last November.

Fading enthusiasm for technology stocks, higher bond yields and weak earnings dragged on the market. The Nasdaq-100 hit resistance near its July peak as semiconductors languished. Then on Wednesday afternoon, MSFT issued weak guidance for its Azure cloud-computing unit. META suggested it will maintain heavy spending on machine learning. Super Micro Computer (SMCI), a darling of the AI trade early in the year, also crashed after its auditor cited potential accounting issues.

Solar-energy stocks and homebuilders were the weakest industry groups overall. Both are sensitive to interest rates, but each had their own specific challenges. Solar companies warned of slowing demand, while builders saw profit margins narrow.

Airlines and cruise-ship operators were some of the top performers thanks to improved results and lower fuel costs. Banks and financials also climbed on strong quarterly results.

Interest Rates

As year-end approaches, investors may look for more signs of rotation away from large growth stocks in favor of value names that could benefit from quicker growth.

Most of the numbers were consistent with a healthy economy. Payrolls surprised to the upside and initial jobless claims fell sharply. Retail sales beat estimates for the fourth straight month, and might have been even higher if gasoline prices hadn’t dropped. Inflation data roughly matched estimates. Interestingly, home prices and shelter costs showed signs of easing. That could be good news over the longer run because it’s more than one-third of the consumer price basket.

The strong economic data helped lift the yield on the 10-year Treasury note above 4.3 percent for the first time since July. Further upside may hurt sentiment toward stocks. However a peak around these levels could confirm the downtrend in borrowing costs. Big events to watch include non-farm payrolls this morning, the Federal Reserve meeting next Thursday and the Consumer Price Index (CPI) on November 13.

U.S. Presidential elections on Tuesday are another major catalyst. See the table below for more key events this month.

Big Movers in October

Sector Watch

Key Economic Events in October

Below are some key economic events from last month.

• Job growth roars back: U.S. employers added 254,000 jobs in September, almost twice the forecast amount. Unemployment fell more than expected, wage growth surprised to the upside and readings from previous months were revised higher. (10/4)
• Glimmers of hope on shelter costs? The Consumer Price Index rose slightly more than expected. However, the annual reading was the lowest in more than three years. Shelter costs, a key driver in the post-pandemic inflation surge, had their second-smallest increase since September 2021. (10/10)
• Retail sales beat again: Retail sales beat estimates for the fourth straight month, rising 0.4 percent in September, versus the 0.3 percent forecast. Excluding gasoline and autos, growth was more than twice the expected amount. General retailers drove the gains. (10/17)
• Economic growth misses but prices cool: U.S. gross domestic product (GDP) expanded 2.8 percent in the third quarter, missing estimates for 3 percent growth. Consumption and government spending fueled the increase and price indexes edged lower. (10/30)

What Experts Are Saying

Below are some noteworthy commentaries:

• Earnings sentiment was cautious in early October, which Bank of America thinks could drive stocks higher as results are announced. Estimate cuts make positive surprises more likely. Lower interest rates could also drive earnings in manufacturing and housing next year. (10/8)
• The S&P 500 could reach 6,400 next year, according to Jonathan Golub and Patrick Palfrey at UBS. They raised their estimate from 6,000, the fourth hike since late 2023. Strong economic growth and corporate profits have fueled the move. (10/15)
• Stifel equity strategist Barry Bannister told BNN Bloomberg that the S&P 500 could hit 6,400 in 2024 before dropping 26 percent. He cited risks from renewed inflation, political uncertainty and high valuations. (10/16)
• The Federal Reserve may cut interest rates only one more time in 2024, according to Blackrock (BLK) CEO Larry Fink. He noted “embedded inflation” and stimulative government policy. Morgan Stanley (MS) CEO Ted Pick separately predicted the end “of zero interest rates and zero inflation.” Both were quoted by CNBC. (10/29)
• Home-price appreciation faces “signs of strain,” according to Brian Luke at S&P Global. He noted slowing increases in August and unwillingness by buyers to accept higher prices. The comments were released along with the S&P CoreLogic Case-Shiller index. (10/29)

Popular Futures Contracts in October

Newsworthy Events This Month

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement visit www.TradeStation.com/DisclosureFutures.