Stocks Mostly Down on Economic Data; Bonds Down Sharply

Good morning,

The stock markets exhibited mixed results last week with Dow (-2.7%), NASDAQ (+0.2%) and S&P 500 (-1.0%).  Note that the NASDAQ’s gain can be attributed to Tesla, as its earnings report caused that stock to jump over 20%, its largest gain since 2013.  Excluding Tesla, the NASDAQ would have lost 0.5%.  Meanwhile, taxable bonds and tax-free municipal bonds each fell about 1.0%.  This was evidenced by the 10-year Treasury yield that rose 0.16% to finish the week at 4.24%. 

There was a slew of economic data reported last week, and most of it was quite disappointing.  My favorite – Leading Economic Indicators (LEIs) – was reported for September and showed that the economy is slowing, as the monthly and 6-month averages both declined.  Existing home sales also fell last month, and its annual decline of 3.5% was the worst rate seen in 14 years.  The silver lining in that report is that inventories increased, which could help ease purchase costs, but that is being offset by increasing mortgage rates.  Lastly, the Fed Beige Book indicated that some consumers were shifting their purchases toward less expensive alternatives, suggesting that their wallets are under pressure.

Contrary to the economic reports, corporate earnings season has begun, and have been mostly positive.  However, their forecasts have been a little disappointing, which has helped put pressure on the markets.  The coming weeks will provide the bulk of the earnings reports with about 1/3 of the S&P 500 companies reporting this week alone, including five of the seven (Magnificent 7) Artificial Intelligence (AI) companies.  Plus, this week will provide two key economic reports.  On Thursday, the Fed-favored inflation report – Personal Consumption Expenditures (PCE) - will be reported and Friday will release the October jobs report.  These reports will serve as critical data for the Fed, as it will announce next Thursday if it will cut interest rates or keep them the same.  And let’s not forget the election next week.  While history has shown that the election results have little bearing on the markets, they certainly create some level of unnecessary angst.

Have a great day and terrific week!

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