Key Highlights
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MARKET SNAPSHOT
The S&P 500 was down 2.20% for October, continuing September’s downward trend (-4.87%), which started in August (-1.77%) after five months of gains (up 15.59%). The three-month index level was in correction mode (-10.28%) but improved in the last two days of the month (0.65%, 1.20%) to close the period down in the single digits (-8.61%). Year-to-date, the S&P 500 remained positive (9.23%), but the index was down considerably from its 2023 closing high (4,588.96 on July 31, 2023, when it was up 19.52% YTD), but up from its recent low (up 17.25% from Oct. 12, 2022). The easy reason for why the index was down this month is that there is more selling than buying, and as for why, one of the major reasons appears to be Q3 earnings. While earnings reports have come in nicely, but not great (77.5% beat, compared to the historical two-thirds), and sales have been stronger than expected (and may set a new quarterly record at USD 3.935 trillion, with earnings at USD 465 billion), the guidance didn’t appear to be as strong as hoped for, as money managers measured the risk/reward going forward against potential 2023 profits and decided to take some of the profit off the table.
The S&P 500 closed at 4,193.80, down 2.20% (-2.10% with dividends) from last month's close of 4,288.05, when it was down 4.87% (-4.77%) from the prior month's close of 4,507.66
(-1.77%, -1.59%). For the three-month period, the index was down 8.61% (-8.25%), as the YTD return was up 9.23% (10.69%) and the one-year return was 8.31% (10.14%). The Dow Jones Industrial Average closed at 33,052.87, as it declined 1.36% (-1.26% with dividends) for the month, less than the S&P 500’s -2.10%, as it continued to significantly trail the S&P 500 YTD, down 0.28% (up 1.44% with dividends) compared with the S&P 500's 9.23%. The variance is due to the weighting (price versus market value), which historically tracks well.
The S&P 500 decreased USD 0.803 trillion for the month (down USD 1,721 trillion last month), as it was up USD 3.002 trillion YTD, to USD 35.135 trillion. Monthly intraday volatility (daily high/low) increased to 1.28% from last month’s 0.88% and was 1.09% YTD; the 2022 volatility was 1.83%, 2021 was 0.97% and 2020 was 1.51%. S&P 500 trading decreased 2% (adjusted for trading days) for October, after being down 3% in September, as the year-over-year rate was down 20% over October 2022. The October 2023 12-month trading volume was up 10% over the prior period, after full-year 2022’s 6% increase.
The S&P 500 continued to decline, centering on earnings (and projections) and interest rates (in that order), as it ended the month in the middle of an FOMC meeting, which was expected to end with no change. Housing data continued to show low supply and higher demand, as prices mostly held their levels (but were off their highs), even as mortgage rates continued to increase (the 30-year rate was 8%). Consumer spending concerns also increased, though consumers continued to spend.
The S&P 500’s one-year Street consensus target price remained optimistic, though it declined after 11 consecutive months of gains (which was after 9 consecutive months of declines) to 5,063, a 20.7% gain from now (19.8% last month), from 5,135 last month. The Dow® target price decreased after three consecutive months of gains, to USD 38,896, a 17.7% gain (17.1%) from now (USD 39,354 last month).
On Oct. 1, 2023, Congress passed a bipartisan 45-day stop-gap funding bill (through Nov. 17, 2023) to prevent a government shutdown. After the vote, the Republican Speaker of the House Kevin McCarthy was voted out of his position by a group of Republicans that disagreed with his polices. In an initial vote to replace the Speaker, Republican Steve Scalise of Louisiana was defeated and more conservative Republican Jim Jordan of Ohio was nominated, as the behind-the-scenes negotiations started for Scalise to get enough votes for the full House vote.
Scalise dropped out of the race, citing the need to unite, and Jim Jordan failed to get enough votes after three rounds of voting (with declining votes for him in each round); he then also dropped out. Tom Emmer of Minnesota was next selected and then dropped out the same day, as he could not get enough votes, and Mike Johnson of Louisiana was then the fourth selection and was voted in as the Speaker of the House.
The backlog of legislation then started to be addressed, as the first item passed was a support bill for Israel. Still awaiting discussions and votes was a funding bill (USD 105 billion and a supplementary bill of USD 56 billion) from Biden, which includes aid for Ukraine and Israel, as well as the U.S. budget, which is under a stop-gap funding bill that ends on Nov. 17, 2023, and would lead to a government shutdown if not addressed.
The U.S budget gap increased to USD 1.7 trillion in September 2023 from the USD 900 billion in July 2022, as the old adage that higher inflation is good news to reduce the deficit failed to work. Government spending continued due to higher interest costs and existing programs (infrastructure, CHIPS, IRA, COVID-19, etc.), as the government set a cost-of-living adjustment for social security at 3.2%, down from last year’s 8.7%. Indications (based on recent guidance) were that the Treasury was laying the groundwork for offering more Treasury bills. Growing deficit spending has increased the need for government borrowing.
The World Bank reduced its expectations for East Asia and the Pacific to grow at 5.0% for 2023, down from its April 2023 estimate of 5.1%, as it now saw 2024 at 4.5%, down from the prior 4.8% level. The International Monetary Fund (IMF) left its global growth rate at 3% for 2023 and 2.9% for 2024, as it raised the U.S. expected growth for 2023 to 2.4% from its July 2.1% projection.
