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Wall Street to Your Street
October Recap: Markets Rebound After Rough Third Quarter
November 5, 2015 | Jeff Branstad, CFA, Investment Product ManagementAfter declining 6.4% for the third quarter, the S&P 500 Index rebounded by more than 8% in October, pushing back into positive territory for the year. Markets around the world generally fared better as well, despite continuing concerns about slowing global growth and uncertainty surrounding the Federal Reserve’s pending decision to raise rates.
By the numbers
Market activity in October, as reflected in the most common market indexes we follow.
|Dow Jones Industrial Average1||8.6%||1.0%||10.0%|
|S&P 500® Index2||8.4%||2.7%||13.7%|
|Russell 2000® Index3||5.6%||-2.5%||4.9%|
|MSCI EAFE Index4||7.8%||2.5%||-4.5%|
|MSCI Emerging Markets Index5||7.1%||-9.2%||-1.8%|
|Barclays U.S. Aggregate Bond Index6||0.0%||1.1%||6.0%|
|Barclays 20+ Year Treasury Index7||-0.5%||-0.7%||27.5%|
|Barclays U.S. Corporate Investment Grade Index8||0.4%||0.3%||7.5%|
|Barclays U.S. High Yield Index9||2.8%||0.2%||2.5%|
|Barclays Municipal Bond Index10||0.4%||2.2%||9.1%|
|U.S. Treasury Yields||As of|
|3-Month U.S. Treasury Bill||0.08%||0.00%||0.04%|
|5-Year U.S. Treasury Bond||1.52%||1.37%||1.65%|
|10-Year U.S. Treasury Bond||2.16%||2.06%||2.17%|
|30-Year U.S. Treasury Bond||2.93%||2.87%||2.75%|
Lack of bad news helps markets regain their footing
The market recovery in October suggests that investors think the factors that contributed to the third-quarter correction were a bit overplayed. While concerns over the Chinese economy persist, no new significant negative factors developed in recent weeks. The decline in Chinese stock markets didn’t spillover significantly into other markets and the support measures taken by the government seemed to have had some positive effects. Other emerging markets have shown signs of life, too, with the MSCI Emerging Market Index climbing more than 7% in October. Crude oil has rebounded some from its third-quarter lows, too, but is still well below the $60 per barrel levels last seen in June.
In the U.S., economic and fundamental reports have also been somewhat mixed, but calm enough to provide some breathing room for the market bounce-back. Corporate earnings have been declining, but not at the pace originally projected. With roughly two-thirds of companies in the S&P 500 reporting third-quarter earnings through the end of the month, 76% have beaten their estimates. The blended earnings rate is still -2.2%, but earlier projections were anticipating a 5.2% decline. Congress was also able to pass a two-year budget deal along with a suspension of the debt ceiling until March 2017, removing any immediate concerns over a potential government shutdown or a disastrous Treasury default. While the shutdown/debt ceiling debate hadn’t reached the fever pitch seen in previous cycles, markets now won’t be forced to endure the uncertainty that had surrounded that discussion in the past. The budget deal even boosted spending by a modest amount, counterbalancing previous fiscal austerity headwinds and, according to economists, likely adding up to 0.2% to future GDP growth rates, although the bipartisan compromise agreement did ultimately cost Rep. John Boehner his job as Speaker of the House.
Fed update: Market predictions evenly split over lift-off dates
The Federal Reserve decided to hold off on raising the federal funds rate yet again, but also slightly changed its language in the statement it released in October, using a more hawkish tone that increased the likelihood of a rate hike before the end of the year. The change in tone caused a modest increase in treasury rates, particularly in shorter maturity bonds. However, futures markets are still split almost evenly as to whether the Fed will raise rates at its December meeting or wait until 2016 to pull the trigger. Softer labor data and persistently low inflation rates, paired with monetary policy divergence (China, Japan, Europe and other central banks are planning to increase their quantitative easing methods while the U.S. is inching towards a significant tightening), has a lot of investors thinking the Fed is better off waiting until March 2016 or even later before lift-off.
In their Market Commentary, Thrivent Asset Management leaders discuss the financial markets, the economy and their respective effects on investors. Writers’ opinions are their own and do not necessarily reflect that of Thrivent Financial. Forecasts, estimates and certain other information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. From time to time, to illustrate a point, they may make reference to asset classes or portfolios they oversee at a macro-economic level. They are not recommending the purchase of any individual security. Asset management services provided by Thrivent Asset Management, LLC, a wholly owned subsidiary of Thrivent Financial, the marketing name for Thrivent Financial for Lutherans.
Securities and investment advisory services are offered through Thrivent Investment Management Inc., 625 Fourth Ave. S., Minneapolis, MN 55415, a FINRA and SIPC member and a wholly owned subsidiary of Thrivent Financial. Past performance is not a guarantee of future result.
1 The Dow Jones Industrial Average is an index of 30 "blue chip" stocks traded in the U.S.
2 The S&P 500® Index is a widely followed index, and is composed of 500 widely held U.S. stocks.
3 The Russell 2000® Index measures performance of small-cap stocks.
4 The MSCI EAFE Index measures developed-economy stocks in Europe, Australasia and the Far East.
5 The MSCI Emerging Markets Index measures developing-economy stocks.
6 The Barclays U.S. Aggregate Bond Index measures performance of a wide variety of publicly traded bonds.
7 The Barclays 20+ Year Treasury Index measures performance of longer maturity treasury bonds.
8 The Barclays U.S. Corporate Investment Grade Index measures performance of the investment grade bond sector.
9 The Barclays High Yield Index measures performance of the high yield bond sector.
10 The Barclays Municipal Bond Index measures performance of the municipal bond sector.