October Economic Update
September brought two terrible natural disasters and more threats of war on America, and the broad S&P 500 index was still able to rise 1.93% and top 2,500 for the first time. In other words, the positive market sentiment remained firmly in charge. European stocks also rallied impressively last month and oil went back above $50.
U.S. economic indicators were a mixed bag, and home sales seemed to be cooling off. In what may be the month’s most important development for investors, the Federal Reserve detailed its plan for reducing its vast securities portfolio. (1)
Both new and existing home sales slowed in August. The latest report from the National Association of Realtors showed resales were down 1.7%. However, this was an improvement from just a month earlier when new home sales had fallen 5.5%. High prices and slim pickings were hindrances to buyers. Developers built fewer projects during the summer. Housing starts were down 0.8% in August after a (revised) 2.2% retreat in July, according to the Census Bureau. (2,3)
Volatility Remains at Record Lows
The first three quarters of this year saw only eight trading days with 1% swings in the S&P. (Over the past 50 years, the yearly average is 52 days.) Low volatility breeds investor confidence. This year, institutional investors have maintained their cool even in the face of the year’s most unnerving headlines. So, absent of black swan events, the market may be poised for more gains.
Will we see a fall rally start in October? It could happen. September ended with the dollar at a 33-month low against a basket of other key currencies, a situation that points toward higher, near-term profits for U.S. firms, while also hinting at greater inflation pressure. As personal finance site NerdWallet notes, stock market analysts are anticipating slightly more than 4% earnings growth for Q3, which is lower than preceding quarterly forecasts, but still solid. (4)