Market's Update: Gloom then Euphoria

Three Month Fall in Stock Prices Ends with Powerful November Rally

August, September and October were not kind to stock or bond investors. Bond prices fell, and the US inflation reports were some-what in line with expectations, yet not enough of a downturn for investors to feel comfortable, with increased interest rate decisions possible by the Federal Reserve.

Over the August through October period, the S&P 500 Index fell 8-1/2 percent, while interest rates rose almost one full percent (on the 10-year Treasury Security). The ’soft-landing’ of the U.S. economy, where inflation would abate, interest rates would stop increasing, and labor and housing price increases would moderate – seemed far, far off.

This chart is the interest rate investors can obtain on the Government Ten Year Treasury Note. It's a one year chart. 

Just last week, investor pessimism changed almost overnight. The Federal Reserve Chairman, Jerome Powell spoke optimistically about the economy’s progress in his Nov. 1st speech, and decided NOT to hike interest rates – for the second time this year.

Also on that day, non-farming payrolls decreased a lot more than expected, and the unemployment rate edged up to 3.9% from 3.8%. You read that right. More folks not working is actually good for the Fed’s mandate to tame price inflation.

Investors cheered the news mid-week, and poured money into almost every sector of the stock and bond markets. Stocks had their best week of the year, adding between 5% and 7% in the popular indices. With the prospect of interest rates falling further, investor’s rushed into bonds to lock in juicy yields.

Gains of 2-3% were seen in bond prices last week; a huge move that is experienced just a few times in such a short span of time. If you sat out the summer doldrums in the stock market (since the late July highs), you may have avoided some losses, but that strategy meant you needed another decision when to buy stocks again. That’s very difficult to handicap. Last week’s rise in the S&P 500 stock index of 5.85% essentially erased 70% of the losses in the three months (August-October). That’s a lesson to not to try to time the market. Allocation of your money among stocks-bond-Gold and Cash is a preferred strategy so you always have some asset that should give you profits.

Our old pal and portfolio investment Gold got October off to a bang after the Israeli war started, but sat out last week’s rally, rising less than one-percent. But, Gold added $180 an ounce – to - $2,000 in the three weeks after the October 7^th Hamas attacks. Gold bullion rose 7% in value in October, cushioning your stock and bond losses. We recommend at least a 10% allocation to Gold investments or the bullion itself in portfolios as insurance against political unrest and other unforseens. 

Next week’s October inflation report, due out 11/14 morning, should provide more valuable data on the effects of interest rates and jobs, hopefully tampering down price rises a bit more, and raising expectations more for both stock and bond investor’s - and the dollar value of your retirement account and other investments also.

I'll say have a safe Thanksgiving if I don't hear from you or post again before then.

~Barry