October 28, 2024
Good morning,
For the first time in 7 weeks, the S&P 500 Index was down last week, off a whopping -0.96%. The corrective pause in the equity market continues – more of a correction for value stocks, and more of a pause for growth stocks. As well, yields continued rising in the fixed income market last week. The 10yr Treasury saw its yield rise another 16 bps (basis points) to 4.24% (a decline of ~ 1.6% in price on the week). That yield is up from 3.60% in mid-September (when the Fed cut rates by 50 bps).
With the VIX (Volatility Index) closing above 20 last week (a commonly accepted threshold suggesting elevated nervousness among investors), the two trends above in equities and fixed income are likely to be tested this week. As for equities, this week is a big one for corporate earnings, including six of the ten largest companies in the US market (5 of the Mag 7’s). Equity investors need to figure out if they are betting on this quarter’s earnings, the economy, or the outcome of the election. All three factors enter the pricing calculus, though the shifting weights and focus help contribute to the noise of the day-to-day price action. There is no wonder as to why the “uncertainty index” (VIX) is so elevated following a relatively calm few weeks.
This week, bonds must contend with more supply in both 2-year and 5-year Treasury auctions, plus next quarter’s refunding announcement on Wednesday, with actual quarterly refunding starting next Monday. Supply is coming as far as the eye can see. The deficit is no longer tomorrow’s concern.
Finally on Friday, both markets get another important piece of economic data – October’s monthly employment numbers. And of course, there is the election only 1-week away. It is likely to be a very noisy week, indeed. See you Thursday.
Be well,
Mike
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