GARDNER BROWN ASSOCIATES, INC.

MONTHLY MARKET INSIGHTS

Stocks fell in October as pre-election jitters hung over trading while solid but not spectacular Q3 corporate reports failed to buoy spirits.

The Dow Jones Industrial Average fell 1.34 percent, while the Standard & Poor’s 500 Index (S&P 500) slipped 0.99 percent. The Nasdaq Composite fell 0.52 percent.1

LAST MONTH

US Markets

Stocks fell in October as pre-election jitters hung over trading while solid but not spectacular Q3 corporate reports failed to buoy spirits.

The Dow Jones Industrial Average fell 1.34 percent, while the Standard & Poor’s 500 Index (S&P 500) slipped 0.99 percent. The Nasdaq Composite fell 0.52 percent.1

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International News

Middle East tensions unsettled investors early in the month as oil prices rose. But as the month progressed, prices fell back as investors took a more measured, wait-and-see approach.2

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Economic Data, Wave I

A bumpy beginning gave way to an upbeat jobs report from the Department of Labor, which boosted markets. The Fed has told investors that it’s now focused on the jobs market as well as inflation, which elevates the importance of the monthly jobs report.3

Stocks continued their climb, with the S&P 500 and Dow Industrial hitting fresh record highs–despite hitting a speed bump after CPI data showed inflation was slightly warmer than expected in September.4

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Economic Data, Wave II

A short time later, the Producer Price Index (PPI) report showed that wholesale prices stayed flat last month—a welcome update after CPI data.5

Then, news that existing home sales fell to a 14-year low in October stymied markets. The third-quarter Gross Domestic Product showed 2.8 percent annualized growth, which was a bit short of economists’ expectations but sparked more talk of a "soft landing."6,7

Q3 Reports

As the Q3 corporate season kicked off, update reports from a few money center banks gave markets an added boost. But as the month wrapped up, mixed reports from a few mega-cap tech companies unsettled investors, who already seemed a bit anxious in the run-up to the election.8

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Sector Scorecard

Three of the 11 S&P 500 sectors were positive in October: Financials (+2.56 percent), Communications Services (+1.81 percent), and Energy (+0.90 percent). The biggest detractors were Health Care (-4.64 percent), Consumer Staples (-3.47 percent), and Technology (-1.56 percent). Meanwhile, Utilities (-1.08 percent), Materials (-3.10 percent), Real Estate (-3.29 percent), Consumer Discretionary (-1.74 percent), and Industrials (-1.19 percent) also trended lower.9

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What Investors May Be Talking About in November

In the month ahead, investors will adjust to the outcome of the November election, which has been one of the most closely watched U.S. cycles in recent history.

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While much focus goes on the presidency, what happens in the House of Representatives and Senate can have more influence on the policy agenda in 2025 and beyond. Here are a couple of areas to keep an eye on:

Taxes. Individual taxes and estate tax rates are expected to come into focus, given that the 2017 tax cuts are scheduled to expire at the end of next year. Corporate tax rates may also be revisited as discussions shift to what’s next with tax policy.

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Government spending. From infrastructure to defense to entitlement programs, expect the financial markets to react as different ideas are proposed. But keep in mind that most changes generally follow a legislative process, which may take time to unfold as the issues are discussed and debated.

World Markets

The MSCI EAFE Index fell 5.50 percent in October with several European markets under pressure during the month.10

France was hardest hit, dropping 3.74 percent. Spain fell 1.72 percent, Germany lost 1.28 percent, and the United Kingdom dipped 1.20 percent. Italy was the outlier, picking up 2.68 percent.11

Egypt dropped 3.79 percent, while Mexico declined 3.46 percent. India fared worse, falling 5.83 percent.12

Pacific Rim markets were mixed despite the global slump. Japan picked up 3.06 percent, while China’s Hang Seng Index lost 3.86 percent. Australia fell 1.33 percent.13

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Indicators

Gross Domestic Product (GDP)

The economy grew 2.8 percent on an annualized basis in Q3, slower than the 3.1 percent that economists expected. While the Q3 GDP cooled off slightly from the second quarter’s 3.0 percent pace.14

Employment

Employers added 254,000 jobs in September, about 100,000 more than economists expected. Unemployment ticked down to 4.1 percent last month—the second month in a row of declines.15

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Retail Sales

Retail sales rose 0.4 percent in September, beating consensus estimates of 0.3 percent. September was an improvement from August when month-over-month sales were flat. Retail sales were up 1.7 percent year over year.16

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Industrial Production

Industrial output fell 0.3 percent in September, weaker than consensus expectations of a 0.2 decline. The decline was primarily driven by a workers’ strike at a large aircraft manufacturer and by the effects of two major hurricanes.17

Housing

Housing starts slipped 0.5 percent in September, driven by lower multifamily sales. Construction of new single-family homes, by contrast, rose during the month. The 0.5 percent decline stood in contrast to August when housing starts rose. Year over year, total starts were down 0.7 percent.18

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Sales of existing homes fell 1 percent to a 14-year low in September as high home prices and election jitters put the brakes on demand. This was the second consecutive monthly decline. Year over year, sales fell 3.5 percent. The median existing-home sales price was $404,500, up 3.0 percent from a year prior.19,20

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New home sales rose 4.1 percent in September to hit a 16-month high as builders offered homebuyer incentives. Year over year, new home sales were up 6.3 percent. The median new home sales price was $426,300, up 3.7 percent over August. There were 470,000 unsold new homes on the market, representing 7.6 months of inventory.21

Consumer Price Index (CPI)

Consumer prices rose 0.2 percent in September and 2.4 percent from a year earlier—slightly warmer than economists expected. Core CPI, which excludes food and energy, grew 0.3 percent in September over the prior month and 3.3 percent on an annualized basis—also warmer than expectations.22

Durable Goods Orders

Orders of manufactured goods designed to last three years or longer fell 0.8 percent in September, slightly better than expectations. The largest drag was a drop in civilian aircraft orders due to the strike at a major U.S. aircraft manufacturer. Excluding that drag, durable goods orders rose 0.4 percent in September.23

The Fed

When the Fed concluded its two-day policy meeting on November 7, Chairman Powell gave investors his near-term outlook for short-term rates given what Fed officials see with inflation and, perhaps more importantly, the jobs market.24

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Since 1977, when Congress amended the Federal Reserve Act, the Fed has had the dual mandate of pursuing maximum employment and stable prices. Policymakers want an inflation rate of 2 percent (as measured by the Personal Consumption Expenditures Price Index) while holding the Bureau of Labor Statistics unemployment rate at 4.1 percent.25

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Over the next few weeks, investors will parse Powell’s November comments to gain insights into what 2025 holds for the bond market and the housing market, which is influenced by mortgage rates.

MONTHLY QUOTE

"Develop enough courage so that you can stand up for yourself and then stand up for somebody else."

Maya Angelou, American scholar and author