Suddenly, a Red October

Here was something that had not happened since April: As the hours ticked down toward the end of the month when the weather is believed to turn cold and nasty, the sell orders appeared at various sports of sale. As Treasury prices were pressured, forcing yields higher, equity prices tumbled, as well. The S&P 500 gave up 1.86% on the session, as the Nasdaq Composite surrendered 2.76%. In fact, all of the major to mid-major equity indexes sold off, and for our two majors, the pressure was enough to tilt October into the red.

For just the second month of 2024 -- and after surviving the often-treacherous month of September -- the S&P 500 posted a negative month in October. The Nasdaq Composite closed out October in the red, as well, although that index had already posted a negative April and a negative July. There's real ugliness out there if you want to find it. Both the S&P 500 and Nasdaq Composite have fared better than other pockets of our marketplace.

For that matter the Russell 2000, despite being up 8% year to date, has posted five red candle months this year, while the Philadelphia Semiconductor Index has now gone negative for three of the past four months. The Philly Semiconductors may be up 18% year to date but are also more than 16% off of their July high.

For the Month...

The S&P 500 went red six of the final nine trading days of October, allowing eight of the 11 S&P sector SPDR exchange-traded funds to lose ground for the month. As the long end of the Treasury yield curve pushed higher, spreads between the short and the long end steepened. This allowed the Financials XLF to post a first-place finish for October across these funds, gaining 2.56%. 

Defensive sectors had an awful month, which is counterintuitive to what you might have thought ... taking places nine through 11 on the monthly performance tables. Health Care XLV took the most severe beating, falling 4.64% in October as three more of these funds lost at least 3% and all eight "losers" gave up at least 1%.

No Day for Fun and Games

Traders were in no mood for fun and games after Microsoft MSFT and Meta Platforms META released quarterly results on Wednesday evening. Microsoft gave up 6.05% on Thursday, while Meta gave back 4.09%. The macro appeared to play the Fed's game on Thursday, but there was a little bit of sloppiness in the numbers. The September personal consumption expenditure price Index, at the headline, printed at year-over-year growth of 2.1% as expected, down from 2.3% growth in August. At the core, however, the index accelerated from year-over-year growth of 2.6% in August to growth of 2.7% (as expected).

This does nothing to upset the Fed's apple cart, as far as it's likely intent to shave the ed Funds Rate by a quarter percentage point is concerned next week. This also keeps alive my thesis that headline inflation probably bottomed in September and will now gradually build. On a month-over-month basis, headline PCE printed at up 0.2%, up from a rise of 0.1% and core PCE printed at up 0.3%, up from 0.2%. Currently, for October, the Cleveland Fed sees year over year CPI at 2.54%, while Hedgeye sees that print at 2.6%. These numbers would be up from the headline September consumer price index growth of 2.4% that actually hit the tape. Just an FYI, as it's really meaningless at this point, the Atlanta Fed released its initial GDPNow estimate for the fourth quarter and that estimate is for growth of 2.7% quarter over quarter at a seasonally adjusted annual rate.

On Thursday, just two S&P sector SPDR ETFs shaded into the green, led by the Utilities XLU, which is a little odd. While one might expect a flight into the more defensive sectors on a heavy red candle day, one might also expect investors to avoid the dividend paying sectors on a day where Treasury yields rise. On that note, Technology XLK took a severe beating on the day, giving back 3.21%.

Breadth was rather awful. Losers beat winners by a 7 to 3 margin at the NYSE and by 3 to 1 at the Nasdaq. Advancing volume took just a 27.3% share of composite NYSE-listed trade and a 31.8% share of composite Nasdaq-listed activity. While aggregate trade ebbed just a bit across Nasdaq-listings, day over day trading volume increased by 14.9% for NYSE-listed securities.

That Could Signal Some Ugliness

Amazon AMZN, however, is up 6% overnight after reporting earnings. That along with some pop experienced by two Dow weaklings, Intel INTC and Boeing BA have put investors in a better mood. Intel is up almost 6% overnight after reporting quarterly numbers, while Boeing is up a rough 2.4% after coming to terms with its striking machinists. All of this appears to be offsetting a lackluster investor reaction to Apple AAPL earnings.

Buckle Up

All that leads us to Friday, Nov. 1: October jobs day. Four days ahead of election day and six days ahead of the next FOMC policy decision. No, I do not expect to see the robust September job creation that we saw in the ADP print this week. No, that does not make me trust the Bureau of Labor Statistic's numbers more than the ADP data. They compile their numbers differently. If you've been displaced by hurricanes or out on strike, but still on your employer's roles, then according to ADP, you are still employed, but according to the BLS, you are out of work. This will impact the data compiled across several states.

I am projecting little more than a seasonally adjusted, then salted and peppered 130,000 or so for September non-farm payrolls that I have seen professional estimates working their way lower all week. I see consensus is around 125,000, but I think that is stale data, as I have seen several economists take their number below 100,000 this week. There is one estimate out there for a few as 57,000 jobs created. That would be an excuse for the Fed to do what they want on Thursday.

I think we may also see participation drop from September, while wages growth hopefully at least holds its own. I would not be surprised to see the unemployment rate rise, but I don't think it is likely. I do think that we will likely see an increase in the underemployment rate. Have a great start to November, gang. I'll leave you with this just to help keep things in perspective...

Pity of the Leaves

Vengeful across the cold November moors,

Loud with ancestral shame there came the bleak

Sad wind that shrieked, and answered with a shriek,

Reverberant through lonely corridors.

The old man heard it; and he heard, perforce,

Words out of lips that were no more to speak—

Words of the past that shook the old man’s cheek

Like dead, remembered footsteps on old floors.

And then there were the leaves that plagued him so!

The brown, thin leaves that on the stones outside

Skipped with a freezing whisper.

Now and then

They stopped, and stayed there—just to let him know

How dead they were; but if the old man cried,

They fluttered off like withered souls of men. 

- Edward Arlington Robinson, 1921

October Employment Situation (08:30 a.m. ET)

Non-Farm Payrolls: Expecting 131K, Last 254K.

Unemployment Rate: Expecting 4.1%, Last 4.1%.

Underemployment Rate: Expecting 7.8%, Last 7.7%.

Participation Rate: Expecting 62.5%, Last 62.7%.

Average Hourly Earnings: Expecting 4.0% y/y, Last 4.0% y/y.

Average Weekly Hours: Expecting 34.2, last 34.2 hours.

Other Economics (All Times Eastern)

09:45 - S&P Global Manufacturing PMI (Oct-F): Flashed 47.8.

10:00 - ISM Manufacturing Index (Oct): Expecting 47.6, Last 47.2.



10:00 - Consumer Spending (Sep): Expecting 0.0% m/m, Last -0.1% m/m.

1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 585.

1:00 p.m. - Baker Hughes Oil Rig Count (Weekly): Last 480.

The Fed (All Times Eastern)

Fed Blackout Period. 

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: CAH (1.63), CVX (2.43), XOM (1.89), W (0.14)

At the time of publication, Guilfoyle was long MSFT, XLU, AMZN, INTC, XOM equity.