Market Minute: Uncertainty and Volatility Set in Before Election

Yesterday’s stock market slump caused October to be the first monthly decline for the S&P 500 since April of this year. Five months of steady increases were interrupted by mixed earnings results from mega cap tech Microsoft (MSFT), Meta (META), and Alphabet (GOOGL). Uneasiness regarding rising long-term interest rates, equity valuations, and uncertainty around the U.S. political circumstances weighed too much on markets by the end of the month. The yield on 10-year Treasury bonds also recorded its largest monthly gain in two years, with a 0.5% increase to about 4.28%. As a result, the dollar has risen, causing broader emerging market equities to record a down month due to higher dollar denominated foreign borrowing costs. The S&P 500 volatility index has risen again above 20 as election uncertainty builds up due to the expected change in various political policies. However, post-election returns have historically been strong for stocks in the month of November. 

Today’s non-farm payroll number published only an increase of 12,000 new jobs for the month of October, well below the 100k consensus estimate. This less than expected initial number can be attributed to the slow pace of hiring during hurricane season as well as a meaningful impact from the Boeing (BA) labor strike. Despite the report, recession risk currently remains low, demonstrated by the continued strength in third quarter GDP which rose to 2.8% in third quarter. Strong consumer spending despite lingering inflation and pro-cyclical fiscal spending remains robust.