3-Month Losing Streak

October 31, 2023

Last month we said interest rates and oil prices were likely to be the catalysts for the market, but the horrific Hamas massacres in Israel changed the narrative and added an unexpected level of uncertainty for investors.  Not surprisingly, the attack sent oil prices higher and gold to levels not seen since May.  In a “news neutral” environment gold typically moves inversely to the U S Dollar, but the dollar was stable while gold jumped 7% in October.  What one would expect to see with the unsettled geopolitical environment.   We began to see the first earnings reports for the third quarter, and they were, on average, stronger than expected.  The first look at Q3 GDP showed the economy growing at an annual rate of 4.9%, the strongest quarter of growth since the 4^th quarter of 2021.  We have a strong economy with solid corporate earnings growth, but rising interest rates and the war in Israel had stock valuations declining for a 3^rd consecutive month.  For the month, the S&P 500 dropped 2.2% but is still 9.2% higher for the year, while the more representative equal weighted S&P 500 lost 4.2% in October and is now down 3.8% for the year.  Interest rates hit a new 16-year high during October, but oil prices dropped 8%.

The month began with concern about a government shutdown, but Congress voted to extend the deadline 45 days which kept the government open, for now.  However, a handful of Congressmen were not pleased with Speaker McCarthy working with the Democrats and voted, for the first time in history, to remove the Speaker of the House.  While the chaos in Washington was unsettling, investors continued to concentrate on interest rates and oil prices.  At the end of the first full week, we learned a much stronger than expected 336,000 new jobs were created in September.  The initial reaction was to sell stocks, but that reversed as the focus turned to the section of the report that showed the slowest wage growth since February of 2022.  At the end of a volatile week the S&P 500 had gained .5%.  Monday was a bank holiday, but the headline news was the Hamas attack on Israel.  War in the Middle East is not new and most of Israel’s wars have been short in duration, so the market showed little initial reaction.  Gold began a strong advance, but oil and interest rates edged lower allowing the S&P 500 to gain another .4% for the week.  The 3^rd full week began with the market edging higher, but the destruction of a hospital in Gaza was a game changer, raising fears the conflict could spread and involve other countries.  Steady selling during the last 3 days of the week left the S&P 500 2.4% lower for the week and in negative territory for the month.  The selling continued during the last full week and accelerated when Google reported disappointing results that sent the tech sector lower.  The steady move down created technical (charts) problems as areas that were thought to be support were violated which generated more selling.  The last full week of the month was the worst in October with the S&P 500 losing 2.5%.  The unrelenting selling took a break on the 30^th with the best Dow rally since June and the month ended with another positive day of trading on Halloween.

Exiting what has traditionally been a difficult period for stocks, we enter the period that has historically been the strongest.  November, December & January account for nearly 50% of all market gains for the year, with December and January being 2 of the 3 best performing months.  Recent selling has brought stock valuations back to more normal levels, but movement in interest rates is likely to be a major catalyst, as is the war in the Middle East.  If we see relief in either rising interest rates or the war, we expect the market to be ready to move higher.  If rates continue to press higher and/or the war in the Middle East expands, we expect the market to continue to be under pressure.  The S&P 500 has declined 10% from the high it set in July, and we have used the selling to reduce some of our inverse (insurance) holding and slowly increase market exposure for those who are underweight equities.

If you know someone who would be interested in learning more about Greenberg Financial Group, please contact us at 520-544-4909, or visit our website at www.greenbergfinancial.com. As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio, follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.  Previous radio shows are available by going to www.iheart.com or using the iHeart app and typing Money Matters with Dean Greenberg.