“The most important quality for an investor is temperament, not intellect.”
-Warren Buffett
Here’s what you need to know this week:
- Stocks take a breather after notching new all-time highs
- Investors brace for potential volatility, although the volatility may be short-lived
Continued Climb
Stocks have retreated slightly this week after notching new highs to close out last week. The Dow Jones and S&P 500 both reached new all-time highs on Friday while the NASDAQ sits less than 1% below its own all-time high. Last week’s gains were driven in part by retail sales data for the month of September. The monthly retail sales report from the Census Bureau showed a 0.4% increase in sales, more than August’s 0.1% and more than the 0.3% that analysts expected[1].
This data shows that the US consumer has remained strong through the interest rate hiking cycle and also hints that last month’s interest rate cut has spurred more economic activity. Corporate earnings have also proved resilient: as of writing, 79% of the S&P 500 component companies that have reported their third quarter earnings have beaten analysts’ estimates[2]. If Q3 earnings season continues at this pace then it should bolster market performance as we head into the final months of the year.
All this data suggests that the economy is in a good place but not to the level of overheating. The Federal Open Market Committee (FOMC) meets again in two weeks, just a day after the presidential election, to make their next decision on interest rates. Last week’s data has increased investor confidence that the Fed will cut interest rates by another 25 basis points (0.25%); as of writing, the bond market is assigning a roughly 90% chance of a rate cut[3].
November Nerves
As we head into November, markets are beginning to show signs of anxiety that are typical of an election year. The CBOE’s Volatility Index (VIX), used to measure stock market volatility, has touched two year-to-date highs since the start of September. This is far from an aberration; in fact markets usually get more volatile heading into an election and then release that stress afterwards:
The chart above shows that, since 1950, the average election year sees roughly a 2% drawdown in the month leading up to the election and then moves higher after the election. Zooming out further: over the last 94 years, the Octobers of election years have averaged a slight decline while the Novembers and Decembers have averaged roughly a 1.7% gain each:
This data all points to the same conclusion I’ve been discussing for the past few weeks: when it comes to your investments, the best course of action in an election year is to ignore the noise and stay focused on your long-term goals.
What Else
- The price of oil continues to fall as Middle East tensions slowly dissipate
- Gold reached yet another new high of $2,730/oz
- Israel killed Hamas leader Yahya Sinwar last Thursday; the US and other allies are calling for a ceasefire now that the mastermind behind the October 7th attacks has been slain
- OU plays 18th ranked Ole Miss at 11:00 AM on ESPN
- OSU plays Baylor this Saturday at 2:30 PM on ESPN+
What We’re Reading
Astronomers have spent decades speculating that Jupiter’s moon Europa may have the proper conditions to support life. After more than a decade of planning, NASA has teamed up with SpaceX to launch a probe to the icy moon. Click below to read more about the mission and its goals, but don’t hold your breath, the probe is expected to take 5½ years to reach its destination:
- https://www.nbcnews.com/science/space/nasa-launch-europa-clipper-mission-icy-moon-jupiter-rcna171706
What’s Happening Downtown
Midtown is hosting the Midtown Walkabout this Saturday, October 26th from 11:00 AM to 5:00 PM. This event features a plethora of free activities such as a scavenger hunt, photo opps, pumpkin decorating, caricatures, as well as deals and giveaways from local shops and restaurants. Click below to learn more:
Written by: Kane Ogle, CFP®
Steve Beck, Amber Eduvigen, CFP®, Kane Ogle, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess, Anne Boone
Sources: [1] Bloomberg [2] Yahoo! Finance [3] CME FedWatch