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Market Recap – October 30, 2023

Keel Point

October 30, 2023

Coming to the end of the three months that are often the most difficult for equity markets, the S&P 500 has entered a “correction” and is down 10.3% from its July 31 high for the year.  It is suffering from the barrage of negative headlines on recession, growth too strong, disinflation too slow, higher mid- and longer-term Treasury rates and international tensions.

  • Real GDP growth in the third quarter was 4.9%, stronger than expected and driven by robust consumer spending, higher net exports, improved manufacturing growth and re-stocking of inventories. It has contributed to concerns about how the Fed might respond at its meetings tomorrow and Wednesday.
  • The bigger potential concern for the Fed is that year over year core PCE inflation declined more slowly than expected, falling to 3.7%, compared to 3.8% in August. The better news is that core PCE inflation for the last three months was 2.6% (annualized rate) vs 4.8% in Q1 suggesting that easing supply shortages are allowing inflation to decline even with the economy growing at an above-potential pace.
  • 10-year U.S. Treasury yields declined to 4.85% from 4.93% after the PCE inflation numbers were released and seem to be unphased by the stronger than expected GDP growth.
  • The Fed most likely will not raise its Fed funds interest rate at its meetings this week, and the probability of any further rate increase in December also looks to be declining as well.

 

We continue to be positive about stock price performance opportunities over the next six months, barring unexpected disruptions from geo-political events.

  • The U.S. economy remains fundamentally strong, albeit showing signs of slowing, and the rate of inflation is moving in the right direction.
  • Stock markets are heading into what are historically the best three months of the year, having sold off from their July 31 high, but with a positive earnings outlook.
  • Q3 earnings are coming in better than expected. With roughly 30% of the S&P reporting, earnings per share (EPS) growth is running at + 12% y/y vs pre-season consensus of +/- 1% (JPMorgan).  EPS guidance into 2024 remains at 12% growth.
  • Tensions in the Middle East are rising and are exacerbated by alliances among Russia, North Korea, China, and Iran who are also working together in support of Russia’s invasion of Ukraine.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC, an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

 

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