October 2023 in Review

by Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager

Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I just wanted to spend a few minutes to give you an update on the markets for the month of October.

Market Returns for October:

The S&P 500 continued to trend lower in October as the index logged its first three-month losing streak since 2020. The S&P 500 was down a little over 2% and the tech-heavy NASDAQ was down around 2.78% for the month. For the year, the S&P 500 is still up a little over 10%.

Bond returns were also lower for the month with the Bloomberg U.S. Aggregate Bond Index down about 1.5% for the month. U.S. Treasury yields rose as the 10-year yield crossed the 5% threshold for the first time since 2007. The 10-year Treasury yield has now settled back down and ended the month around 4.84%.

3rd quarter corporate earnings have been better than expected. So far, with over 50% of the companies reporting in the S&P 500, 78% of the companies reported earnings above expectations and the average blended earnings growth estimate is around 4.9%. Given the recent sell-off in the equity markets these last three months, stock valuations have come down as their average forward price to earnings ratio is around 17x, which is actually close to the long-term 25-year average of 16.75x.

GDP:

U.S. economic growth surged this summer at the fastest pace since 2021, as consumers continued to spend. Gross domestic product (GDP) expanded at a 4.9% seasonally-adjusted annual rate in the 3rd quarter, which was more than double the 2nd quarter pace and better than anticipated. Consumer spending rose at an annual rate of 4.0%, jumping from a gain of 0.8% in the prior quarter.

Federal Reserve:

The Federal Reserve is concluding their two-day meeting today on November 1st, and the Fed will likely signal they plan to hold interest rates steady at the current rate of 5.25-5.50%. They have cited progress on lowering inflation and the recent run-up in longer-term interest rates, which has actually done some of the work of tightening financial conditions for them. Investors will be watching for any clues from the Federal Reserve about how they are leaning for the future.

Outlook:

The economy is expected to slow down, especially after the robust GDP in the 3rd quarter. Estimates for the 4th quarter GDP range from 1-2%. Higher interest rates for car loans, mortgages, and consumer loans could cause a cooling in several parts of the economy. Mortgage rates are now in the 7-8% range and housing inventory remains at extremely low levels. The labor market continues to be resilient as economists are expecting an increase in payrolls this Friday by 180,000. As always, thanks for joining me for this month’s market recap.