Stocks continued their October slide last week, with the Russell 2000 declining 1.94% and the S&P 500 slipping 0.95%. The strong dollar acted as an additional headwind for overseas markets, with EAFE down 1.39% and EM declining 1.93%. The 10 year Treasury yield increased from 1.73% to 1.80% last week as a hawkish tone in September’s FOMC meeting minutes pushed rates higher.
The markets were weighed down by a strengthening dollar and increasing long term interest rates. A stronger dollar and rising rates negatively affects corporate earnings which are already expected to be languid as they are reported over the next few weeks. J. P. Morgan Chase, Citigroup and Wells Fargo reported and modestly beat earnings expectations, however, year-over-year net income declined and a possible slowdown in commercial lending activity surfaced. Wells Fargo’s profit fell 2.6% amid the fallout of the sales –tactics scandal.
With less than one month away from the U S Presidential election, the polarized political views are, and will continue to be, a drag on the financial markets. In addition, there is concern that government bond yields will continue to rise across developed markets reflecting better economic data and less accommodative monetary policy. With enough positive economic data being reported, the Fed will more than likely raise rates by 0.25% in December.
This week’s calendar will be very active, with another presidential debate set for Wednesday. A slew of corporate earnings announcements and the consumer price index, housing indices, and jobless claims will also be reported.
“I’m not an old, experienced hand at politics. But I am now seasoned enough to have learned that the hardest thing about any political campaign is how to win without proving that you are unworthy of winning.” – Adlai E. Stevenson