After riding a wave of tricky market turbulence mid-month, investors were treated with a sharp rally as the month waned. Of note, the S&P 500 has climbed 8.4% since Oct. 15, after falling more than 7% from the highs of the months before. The momentum was enough for all three major domestic stock indexes to end the month well into positive territory (the S&P 500 and Dow Jones Industrial Average hit record highs on Halloween). And better-than-expected earnings, news of stimulus efforts by the Bank of Japan, and positive domestic economic data alleviated investor concern over the end of the Federal Reserve’s quantitative easing and weakness abroad.
|9/30/14 Close||10/31/14 Close||Change||Gain/Loss|
Performance reflects price returns as of October 31, 2014.
In addition, government data showed that third quarter gross domestic product (GDP) increased at a 3.5% annual rate, beating economists’ predictions. Of course, those figures will be revised as the component numbers get finalized, wrote Chief Economist Scott Brown in recent commentary. “While components may be a bit mixed in [the third quarter], the U.S. economy remains firmly on the recovery path,” he noted. Other reports showed a rise in consumer confidence, an increase in manufacturing activity and lower unemployment figures.
As expected, the Federal Reserve ended its asset purchase program (known as QE3) and reaffirmed that the central bank expects to keep short-term rates low “for a considerable time,” even as it continues to monitor economic data for signs of improvement. The Fed’s policy statement also noted diminishing slack in the labor market and downplayed concerns about low inflation. The anticipated end of its bond buying didn’t deter demand for U.S. Treasuries; instead buyers from foreign central banks and pension funds have stepped up their own purchases, according to Bloomberg.
While the focus for the Federal Reserve remains on the U.S. job market and domestic inflationary pressures, policymakers have to take overseas developments into account. Global economic weakness may limit U.S. exports, but domestic demand is likely to strengthen. Gasoline prices have been falling and should help support consumer spending through the important holiday shopping season and into the early part of 2015, according to Brown.
For now, European weakness and geopolitical concerns could present some downside risk for investors, and we still may experience some near-term volatility. But, as Brown noted, “the U.S. economic outlook isn’t bad at all.”
As we head into November, I find myself thankful to work with clients like you. Should you have questions about past market events or your financial plan, please reach out to me. I look forward to speaking with you.
Dennis Zeimet, CFP®, RFC
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The performance mentioned does not include transaction costs which would reduce an investor’s return.