Stocks Exhibit Modest Gains as Earnings Season Begin; Bonds Flat

Good morning,

The Dow (+1.0%), NASDAQ (+0.9%) and S&P 500 (+0.9%) exhibited modest gains last week.  Meanwhile, taxable bonds were flat and tax-free municipal bonds gained about 0.2%.  The 10-year Treasury yield remained unchanged at 4.08%.

It was a slow week for economic data, but retail sales for September rose more than expected, demonstrating that the consumer continues to remain resilient, even in the face of higher costs and a weakening labor market.  Corporate earnings season began, as the big banks reported better-than-expected earnings results, helping propel the financial sector.  Earnings reports will be flowing for the next couple weeks, and will provide investors with better insight into how the economy did last quarter, but also how CEOs forecast the next quarter.  This week will also include the release of a slew of economic data to mix with the earnings reports, so it will hopefully provide some clarity to investors regarding the economy.

Let’s talk about the 800-pound gorilla in the room, along with the smaller one beside it.  We are two weeks away from the US election, and that is providing some level of angst among US citizens.  Then, two days later, the Fed will announce if it will be cutting rates again.  Let’s address the latter one first.  Recent economic data and the divergence of opinion among Fed members are suggesting that the Fed may pause and not cut rates at its net meeting on November 7.  As for the election, I recall that the last few elections have brought a high level of angst (and in some cases, division) among the American public.  History has shown that the results of the election have less bearing on the markets than most people would expect.  There will typically be some movement in the markets which are an emotional reaction, and then some relief as the election is over (and results hopefully published promptly).  If there is any one thing that is certain – I won’t be disappointed for the political ads to cease, especially as a Pennsylvania resident where the most amount of money is being spent on political ads.  I won’t miss them.

Have a great day and terrific week!

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