Market Recap – October Is Off To A Positive Start

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Market Digest – Week Ending 10/2

Wednesday marked the end of a dismal quarter for stocks, but October is off to a positive start and global indexes posted gains for the full week. A softer than expected jobs report on Friday initially sparked declines, especially in bank stocks. But optimism that lower interest rates could last longer gained momentum over the day and pushed stocks positive for the day and week. Bonds rose, with the 10 year Treasury yield dipping below 2%. In geopolitical news, Russia began airstrikes in Syria, raising the stakes in the conflict and creating possible tension with the US.

Weekly Returns:

S&P 500: 1,951 (+1.7%)
FTSE All-World ex-US: (+2.7%)
US 10 Year Treasury Yield: 1.99% (-0.18%)
Gold: $1,137 (-0.8%)
USD/EUR: $1.122 (+0.2%)

Major Events:

• Monday – New York Fed Bank President William Dudley indicated he expects the Fed to raise rates sometime this year.
• Wednesday – Stocks rose on the last day of the quarter, but the S&P 500 finished down nearly 7% in Q3.
• Wednesday – Online lender Social Finance confirmed that SoftBank Group led a $1 billion investment round that values the company at roughly $4 billion.
• Wednesday – Russia launched airstrikes in Syria which the US claimed included targets including but not limited to ISIS.
• Thursday – US auto sales grew in September and put the industry in position to achieve its beset sales year since 2000.
• Friday – Payroll growth was softer than expected and the government revised down estimates for August and September. The report led some to believe the Fed will not raise rates in 2015.
• Friday – President Obama criticized Russia for what he called indiscriminate airstrikes in Syria.

Our take:

Q3 was the first quarter in 11 where the S&P posted a negative return. It also witnessed the first official correction since 2011. Somewhat to our surprise, most investors took the volatility in stride. We didn’t see much freak-out in the retail investor world. So the real question appears to be what happens next – were the declines in late August a classic correction, or the start of a big, bear market?

No one has the answer, but it feels a lot like a simple correction. Most of the declines came in a two week period, and stocks have been flattish for about a month now. Bear markets usually roll over slowly rather than kick off with a bang. Globally, the FTSE All World Stock index has been choppy for about a year so one could make the case that the bull market has been limping for a while.

Earnings season is about to kick off, and we think corporate results will be more important for stock results than they have been for most of the last few years, which were more macro driven. No one has a crystal ball, but it was nice to see the first two days of Q4 move in a positive direction.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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