Equities Finish Up Amid Tumultuous Geopolitical Landscape

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

  • U.S. equities finished the week slightly higher as the geopolitical landscape became more uncertain.
    • S&P 500 +0.46% Dow +0.79% Russell 2000 -1.58%, Nasdaq -0.18%[1]
      • The All-Country World Index rose +0.22%.1
    • S&P 500 sub-sectors were mostly higher last week.
      • Energy & Utilities led to the upside. 1
      • Materials & Consumer Discretionary were the lone negative sectors. 1
    • The CBOE Volatility Index (VIX) gained 10% last week to finish at 19.19. 1
  • US Treasury bond yields moved lower last week.
    • US 2yr -0.04% at 5.04%, 10yr -0.15% to 4.63%, 30yr -0.17% to 4.78%.1
    • Yields have dropped from their recent highs on the back of concerns in the Middle East.
  • Commodities as an aggregate asset class were higher last week.
    • WTI Crude rose +5.88%.1
    • Gold shot higher by 5.28%.1
    • The US Dollar index gained +0.59%.1
  • In our opinion, U.S. economic data continued to be mixed last week.
    • Small business optimism cam in lower than expected. 1
    • Both measures of inflation (CPI/PPI) came in higher than expected for the month. 1
    • Consumer Sentiment came in lower than anticipated for October. 1
  • An index of equities outside the US (FTSE All-World ex-US) was flat at -0.04%.1

Conclusion

  • US Equities finished the week mixed with the S&P 500 notching its 2nd straight small weekly advance even as the Middle East conflict escalates.
    • The S&P 500 & Dow Jones Industrial average led major domestic indices higher with small gains.
    • The Nasdaq declined -0.18% on the back on Consume Discretionary showing weakness. 1
    • The small-cap tracking Russell 2000 led to the downside with losses over 1.5%.1
      • This coincides with small businesses growing more pessimistic on the economic outlook and the availability of credit.
  • S&P 500 subsectors were mostly positive last week.
    • Energy & Utilities led to the upside.
      • While Utilities have lagged year-to-date, the sector traditionally has outperformed in moments of market pricing in economic recession and/or rates moving lower.
      • If the market starts pricing in recession risks, Utes could outperform by a large margin.
    • Consumer Discretionary led to the downside as additional measures of the health of the consumer & their collective spending continued to weaken.
      • The latest consumer spending report showed it rising by just 0.1% in the latest month which is the weakest level since March. 1
  • US Treasury yields saw a reprieve last week from their recent massive move higher.
    • Potential war in the Middle East caused many investors to flock towards the safe-haven status of longer term US Treasuries, driving yields lower.
    • Additionally, multiple Federal Reserve speakers commented on the higher yields on the 10 & 30yr issues possibly helping the central bank accomplish their goal of lowering inflation.
    • Countering this argument were higher than expected inflation reports from both the consumer price & producer price indices last week.
  • Commodities were mostly higher last week as oil gained almost 6%.1
    • Gold shot higher last week by over 5%.1
      • This is a common occurrence following an initial bout of geopolitical turmoil.
      • Also helping gold was the drop in longer-term US Treasury yields.
    • We warn that this recent price action in gold leaves the precious metal notably overvalued relative to real rates.
  • With the list of stock-market related concerns seemingly growing by the day, investors are turning their attention to earnings season for a dose of good news with hopes from the familiar group of Big Tech.
    • After slashing thousands of jobs to cut costs, the biggest US technology co’s are pumping out profits similar to those generated 2 years ago.
    • The biggest 5 companies (AAPL/MSFT/GOOG/AMZN/NVDA) in the S&P 500, which account for a quarter of the index, are expected to see their earnings jump 34% from a year earlier. 1
    • The S&P 500 as a whole isn’t looking as strong with expectations for flat year-over-year results.
    • One potential roadblock to an earnings fueled rally is that a lot of the anticipated good news may already be priced into the shares as their market valuations are still elevated.
      • Apple & Microsoft trade at 27x & 29x their earnings which is well above historical levels for S&P 500 companies of about 18x. 1

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 10/13/2023 

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