Happy Halloween! October is over. Boy was it eventful. The tricks came early in the month, and now it seems to be all treats. Investors finally experienced the first 10% correction since the Summer of 2011. It’s something that occurs on average every 2 years, and is deemed healthy, but it’s rarely fun. It’s the Fall. This correction was swift and fierce, occurring in just 3 weeks time. And then it reversed course, with a 10% rally which brought the DOW and S&P back to new highs. The hyper-volatility doesn’t help investor confidence, but finishing the month at highs certainly helps the bottom-line. It happened in October.
So what caused it? Of course we never really know for certain. Part of it was simple profit taking. The Market was overdue for a correction, and had priced in a lot of the good news. Growing International issues, both economically and geopolitically, took its toll. The Ebola scare perhaps was the final catalyst to spook investors and send stocks lower. Crude oil prices fell precipitously in October, which has a mixed impact. Demand growth has slowed down a bit as economic activity stalled in Europe. But demand is still growing. On the plus side, lower oil prices mean cheaper gas and more discretionary money to spend elsewhere. It’s great for American consumers ahead of the holidays.
The Federal Reserve concluded its bond-buying program this week, better known as QE3. After an extended period of accommodative monetary policy, our central bankers determined that the unemployment rate had sufficiently declined, and the US economy is on firmer footing now. The need for excess economic stimulants is over… at least for now. The Fed will not actually increase interest rates until next year at the earliest, and our best guess remains in the second half of 2015. Inflation is tame. Interest rates remain very low. Overseas, the concern is economic contraction and deflation. Two days after our Fed ended its stimulus plan, the Bank of Japan announced one of their own, and it sent global stock markets higher.
‘Tis the season. Historically, September is the worst month of the year for stocks. October has seen the greatest number of Market bottoms, which set up a big year-end rally, as November and December are the best Market months on the year. We anticipate a strong finish. So far it’s playing out.
Who anticipated another Giants world series title? Not many. Sure it’s an even year, but it was a very odd season, with a dramatic finish for the ages. Three titles in 5 years. Madison Bumgarner had a run for the ages. This team came together with a purpose and a common goal. Chemistry in teamwork is a powerful thing.
Have a nice weekend. We’ll be back dark and early on Monday.
By: Mike Frazier