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October Economic Update

Market Summary

Optimism reigned supreme in September as Wall Street shrugged off trade worries which were top of mind for economists and investors overseas. The bulls did not hesitate at the prospect of tariffs and the probability of another interest rate hike. By the end of month, the S&P 500 rose 0.43% for the month; even more impressive is that September has historically been a weak time for the market.

While the broad-based S&P advanced, the Nasdaq and small-cap Russell 2000 indices pulled back; 0.78% and 2.62% respectively. In particular, the Russell index seemed especially sensitive to the Federal Reserve’s announcement of another interest rate hike, which was expected. On the whole, U.S. economic indicators were quite good, and some even offered pleasant surprises. (1,2)

U.S. Economic Developments

On the last day of September, Canada joined the U.S. and Mexico in a new proposed trade pact representing an evolution of the existing North American Free Trade Agreement (NAFTA). The new accord, if approved by the governments of Canada, Mexico, and the U.S., would toughen intellectual property and trade secret regulations, require 75% of autos made in North America to use parts from North American manufacturers, stipulate new labor requirements for Mexican industry, and seek to crack down further on unsanctioned fish, animal, and timber imports. (3)

The job market remains strong as new data showed hiring bouncing back in August. The Department of Labor stated that the economy added 201,000 net new jobs in that month. Annualized wage growth reached 2.9%, the best number seen since the end of the Great Recession in 2009. The primary jobless rate remained low at 3.9%; the underemployment rate ticked down to 7.4%, which is a 17-year low. (4)

Outlook for the Fourth Quarter

Through the years, October has tended to be one of the more turbulent months for equities. The historic standard deviation (a statistical measurement for large moves) for the Dow Industrials in October is 1.44%, as opposed to 1.05% for the other eleven months. This October may break the pattern and be remarkably calm; the past can be a faulty tool indeed for predicting the future. The fourth quarter has historically finished strong into the holiday season. (5)