The SPDR S&P500 ETF (SPY) finished the month down -7.1% while the NASDQ 100 (QQQ) ETF was off by -8.6%.
Yields on the Ten Year Treasury settled at 3.16% up from September’s close of 3.06% and after trading as high as 3.24% earlier in October. Accordingly the iShares Core US Aggregate Bond ETF (AGG) posted a negative return of -0.6% for the month.
The SPDR Gold Shares ETF (GLD) provided some relief for investors as it gained 2.1% for the month.
Core ETF Performance
ETF October Year to Date
SPY – SPDR S&P 500 (7.1)% 2.7%
QQQ – Invesco QQQ (NASDAQ) (8.6)% 9.6%
GLD – SPDR Gold Shares 2.1 % (8.8)%
AGG – iShare Core US Aggregate Bond (0.6)% (2.1)%
Perhaps most disconcerting about the October market declines is that they came in the midst of positive economic (at least on the domestic front) and corporate earnings news. The month started off on a high note with the announcement of a new North American trade agreement that includes Canada. In addition the first week of the month brought a record high reading for the ISM Services Index for September as well as a generally positive jobs report for September which included a 3.7% rate for unemployment.
In addition GDP for the third quarter posted a healthy 3.5% increase and according to Factset (via Briefing.com) “the blended third quarter earnings growth rate was 22.5% up from 19.3% in September.”
However as yields on the ten year treasury rose, stocks began to sell off. As the stock slump continued President Trump weighed in by suggesting that the Federal Reserve was responsible for the selloff by continuing to raise interest rates. However the reality is that the Fed rate hikes has long been telegraphed and digested by markets and are part of a long term planned (some would say too long of a plan) return to normalcy, following nearly a decade of extraordinary fed policy.
More likely culprits for the continued selloff include the fact that the S&P 500 broke its 200 day moving average, which is a key indicator followed by traders, as well as the significant damage done by less hyped (compared to but historically strong Hurricane Michael striking the Florida panhandle. While financial media and many economists like to point to the economic “benefits” of rebuilding after such an event, the reality is that significant property and wealth was destroyed and ay economic spending to repair and rebuild is simply taken from money that could have been spent elsewhere. Indeed somebody, i.e insurance and re-insurance companies, will have significant checks to write.
November market action will likely be heavily affected by political fallout of the elections. While most prognosticators expected a democratic takeover of the House and the republicans holding control of the Senate, most were surprised that republicans actually increased their majority in the upper chamber. This could set the scene for each side of the aisle to dig in further as they are emboldened by their interpretation of the election results.
DISCLAIMER: Nothing in this article should be construed as a personal recommendation or advice. Nor should anything in this article be construed as an offer, or a solicitation of an offer, to sell or buy any investment security. Barnhart Investment Advisory clients and principals may hold positions in any securities mentioned in this article. Investors should conduct their own due diligence and seek the advice of a financial and/or investment professional before making any investment decisions.