October Market Recap: Stocks Rebound on US-China Trade Optimism

Stocks rebounded in the final days of October, softening what was otherwise a rough month.

Optimism for a potential trade breakthrough between the US and China at the G20 meeting later this month helped fuel gains. International shares fared best. Corporate earnings continue to be mostly good, but not as universally positive as we’ve seen the last two quarters. On Thursday, Apple issued disappointing guidance for holiday sales and shares fell 7%.

Weekly Returns

S&P 500: 2,723 (+2.4%)
FTSE All-World ex-US (VEU): (+3.5%)
US 10 Year Treasury Yield: 3.22% (+0.13)
Gold: $1,233 (-0.2%)
EUR/USD: $1.139 (-0.1%)

Major Event

• Monday – A Lion Air Boeing 737 crashed outside of Jakarta.
• Monday – Tech stocks continued to decline, with Amazon and Netflix hitting down 20%, approaching “bear market” territory.
• Tuesday – New GE CEO Larry Culp slashed the dividend to one cent and said the company would significantly miss profit targets for the year.
• Tuesday – President Trump said he wishes to end automatic right to citizenship to those born in the US.
• Wednesday – GM issued surprisingly strong Q3 results and also announced it is offering buyouts to 18,000 salaried employees.
• Thursday – The Justice Department charted two ex-Goldman Sachs bankers in connection to the Malaysian 1MDB scandal.
• Thursday – Apple posted strong revenues and earnings but issued softer guidance and announced it will stop reporting unit sales volumes for iPhones.
• Friday – The US added 250,000 jobs and unemployment remained at 3.7%, the lowest since 1969.

Our Take

Two positive days to end October were welcome after market losses seemed to be accelerating early in the week. In the US, declines appeared out of nowhere and have been sharp and steep after a recent all-time high. It has been difficult to pinpoint a specific cause. Typically, that behavior is more characteristic of a correction than something that evolves into a full-fledged bear market.

However, the global market tells a different story. With international stocks (VEU) down 9% for the year, the global market has remained below its highs from January and has seen a flattish or down trend since.

None of this can tell us with any certainty where the market is headed, but it suggests investors should be prepared for all outcomes. That is true in terms of high level asset allocation and also how diversified one’s stock portfolio is. The tech darlings took a beating this month. That may turn out to be a blip, but there could still be a long way to fall for the leaders of this bull market if a real bear shows up.