Good Riddance October

Welcome, November. You couldn’t have come fast enough. October was as bad of a month as I can remember in California. The state has faced swarming fires from north to south due to the bone dry golden landscape and fierce winds. Homes have been lost. Lives were lost. Evacuations have been massive. Much of it has come during times of no power, which has made it much more difficult to coordinate and communicate. The risks are certainly not over yet, but substantial progress has been made with the dedicated hard work from our exceptional first responders and firefighters while the winds have finally died down. CalFire are heroes. The smoke dissipated and power returned in time for Halloween. That was great news for California kids. Halloween marks the final day in October and is supposed to be a festive evening of fun centered around kids racing around neighborhoods in costumes full of fearless fun, seeking sweets. Unfortunately, Halloween had a frightening finish. There was another mass shooting. This time in Orinda. I find myself somberly wondering, and my discussions with pretty much every Californian I engage clearly agrees, what is happening to us??? What does the future hold for our younger generation? This concern weighs heavily on me every single day. I understand I am so far from alone here. These new normals are becoming more and more troubling. It’s our new reality.

Our nation’s capital is home to the World Series champs for the first time in a century. The Washington Nationals seem to have provided the only bipartisan achievement to DC. Our government and political parties seem to keep stretching the length of division in our nation. The House of Representatives voted, pretty much along party lines, to begin a public phase of the impeachment inquiry. It happened on the last day of October. This is going to be a major focus in November and will likely have a profound impact on the election taking place next November.

October saw a whole lot of back and forth between the US and China on trade. A deal was close. But then talks broke down. Chinese delegates were leaving early. But they ended up staying late. China’s going to buy more American agriculture. The US is going to delay tariffs. Both of those happened. Both could be pulled back at any time. China said they have doubts it can get a long-term deal done with this White House. But both Presidents still plan to meet in November to ink phase one of some sort of deal.

The Fed held a widely anticipated meeting in October, where a rate cut was a complete lock. Keep in mind, the US Economy is still growing. The rate of growth is a solid 2%. Forget that the unemployment rate at 5-decade lows and the Stock Market at all-time highs, interest rates are now lower. Taking it a step further, the Fed said that a rate hike will only come if inflation picks up. Inflation has basically flatlined. The Fed sent a big signal that another rate hike is not coming, and they will remain supportive. The Stock Market got more medicine it craves. It hasn’t paid to fight the Fed.

October brings Q3 Earnings Season. Earnings are on track to decline for the quarter. That was expected. 342 of the 500 companies in the S&P have reported. 3 out of 4 have beaten estimates. With the Stock Market and earnings, it’s not necessarily about good and bad. It’s more about better or worse. But earnings still matter. Earnings are the ultimate driver of stock prices. Despite the slowdown this year, the Street projects earnings growth to accelerate next year and no longer fear recession. How things have changed in such a short period of time. Just three months ago, fears were boiling over by the inverted yield curve for the pending recession. Investor sentiment has spiked near the highs of the year, back to levels right before the May and August sell-offs. There’s nothing like price to change sentiment. The price action this year reminds me so much of 1999. I remember vividly as I entered this industry talking to the seasoned veteran investors that were so cautious around a bubble formation and that fundamentals did not support the rally. Some were flat out angry as they were cast aside as irrelevant because they didn’t understand the new economy. They were right. They were just early. Making money masks many problems.

Now that October is over, it sets up the strong seasonal period of strong stocks to end the year. November and December have historically been the best months for stocks. However, last year experienced a brutal finish with the worst December since the Great Depression. We don’t see another Christmas Massacre ahead. But we do think that things are way overbought and that the Stock Market is not properly pricing in the growing risks. We’re just glad that October is behind us.

Have a nice weekend. We’ll be back, dark and early on Monday.


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