In October, U.S. stocks experienced a decline, with the S&P and Nasdaq both falling over 10% from their July highs, entering correction territory. Big tech companies generally performed lower, impacting most sectors negatively, including Energy, Airlines, Media, Homebuilders, Chemicals, Semiconductors, Machinery, and Banks. However, Managed Care, Aerospace and Defense, Property and Casualty insurers, Healthcare providers, Restaurants, and Utilities showed better performance.
The bond market also weakened in October, resulting in a noticeable steepening of the yield curve. The 2-year Treasury yield saw a slight increase, while 10-year and 30-year yields rose over 30 basis points. This rise in yields affected stock sentiment as the market adjusted to the idea of a Federal Reserve maintaining higher interest rates. Positive economic surprises, such as strong retail sales and robust Q3 GDP, accompanied these developments.
The U.S. dollar exhibited mixed performance, weakening against the euro but strengthening against the Japanese yen. Gold experienced a significant increase, rising by 6.9% and briefly surpassing $2,000 per ounce. However, oil prices decreased from their year-to-date peak in late September, with WTI finishing the month down by 10.8%.
Geopolitical risks came into focus following a terrorist attack on Israel by Hamas on October 7th. This led to the taking of numerous hostages, including U.S. citizens. While the market historically tends to overlook geopolitical events, a wider conflict could impact energy prices and inflation.
The third-quarter earnings season started with a blended earnings growth of approximately 2.8%, beating pre-season expectations. However, the magnitude of surprises ran below the 5-year average. The market responded harshly to earnings misses, even punishing earnings beats. Negative guidance also influenced price action. As technicals deteriorated and bearish sentiment remained, potential rallies were quickly sold. The outcome of positive trends into year-end remains uncertain.