Mid-Week Market Minute 11.01.23

Market Updates

Major Indices Down; Positive Earnings Reports

Stocks were trading higher early this week as investors await the outcome of the FOMC policy-setting meeting later Wednesday and look forward to key earnings and economic data. Major indices are coming off a third-consecutive losing month with the S&P 500 index down about 2.2% in October. Meanwhile, bond returns also have suffered in the short-term, as interest rates have risen. In October, the yield on the 10-year U.S. Treasury briefly rose above the 5% mark for the first time since 2007, adding to concerns about the impact of higher-for-longer interest rates and tightening financial conditions. Markets continue to evaluate as the central bank is expected to maintain rates in the 5.25%-5.50% range at the conclusion of the Wednesday, Nov. 1 meeting. According to the CME FedWatch tool, futures pricing suggests a more than 99% probability rates will remain at current levels, with a 75% change of rates staying same at the next December meeting. 

On the earnings front, through Oct. 27 about half of the companies in the S&P 500 have reported results for the third quarter of 2023. Of these companies, 78% have exceeded earnings expectations, which is above the five-year average of 77% and above the 10-year average of 74%. (Factset). The busy earnings week will be highlighted by Apple earnings, due out after the market close on Thursday. Key economic data will come on Friday, as October 2023 non-farm payrolls are expected to increase by 183,000, down from 336,000 in the prior month, with the unemployment rate projected to remain at 3.8%. An important part of the employment report will be average hourly earnings, expected to fall from 4.2% to 4.0% on a year-over-year basis. This “wage inflation” is closely monitored by the Fed and should provide insights as to the ongoing path of inflation.

On a final note, the Treasury Department announced plans early Wednesday to increase the size of its note and bond auctions as it looks to handle its increasing debt load against the backdrop of rising financing costs. The department said it would need to borrow $776 billion in the current quarter and $816 billion in the first quarter of calendar 2024. These auction changes are important to investors because of the uncertainty if there will be enough demand to absorb the increased supply. The concern is increased issuance, along with an overall reduction in the Fed’s balance sheet, would send yields up even further. The effect on the markets of this added supply will be another important factor for the Fed to consider in their ongoing policy decisions. 

Source: GSAM, CNBC, JPMorgan, Factset

This communication is for informational purposes only. It is not intended as investment advice or an offer or solicitation for the purchase or sale of any financial instrument.

Indices are unmanaged, represent past performance, do not incur fees or expenses, and cannot be invested into directly. Past performance is no guarantee of future results.