Investors Survive a Turbulent October, Shifting to New Stocks as Interest Rates Climb

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Stocks held their ground during a turbulent October as investors focused on new areas that could lead in the market’s next cycle.

The S&P 500 rose 8 percent, advancing for the first time in three months. The move came after a higher-than-expected inflation report drove stocks to their lowest level since November 2020. Investors bought the pullback, resulting in a dramatic reversal as attention shifted toward corporate earnings.

Some changes could also be taking place as megacap growth stocks continued to lag. For example Amazon.com (AMZN) and Meta Platforms (META), were some of the earliest names to break out when the coronavirus pandemic fueled interest in technology. However weak earnings drove both to multiyear lows in October. Meanwhile, different groups like industrials, financials and small caps are starting to outperform.

The change could represent the different realities of a post-pandemic economy. So far, the new normal has favored lower-multiple companies providing old-fashioned goods and services. That includes food, travel, energy, health care and industrial goods. Market Insights will keep following these themes as yearend approaches and the Federal Reserve continues raising interest rates.

Big Movers in October

Top Gainers in the S&P 500 Last Month
DexCom (DXCM)+50%The diabetes company rose on strong results and a favorable government ruling.
Norwegian Cruise Line (NCLH)+49%Bookings improved as demand recovers from the pandemic.
Halliburton (HAL)+48%Earnings beat estimates as energy production rebounded.
Schlumberger (SLB)+45%The oilfield servicer’s results beat estimates.
Royal Caribbean (RCL)+41%The cruise operator gained before quarterly results on Thursday.
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
Generac (GNRC)-35%The generator company warned revenue will miss estimates.
Meta Platforms (META)-31%Slower ad spending and higher costs hurt the social media giant.
SVB Financial (SIVB)-31%Venture-capital weakness hurt the tech-focused bank.
Bio-Rad Laboratories (BIO)-16%The lifesciences company missed earnings and revenue estimates.
Tesla (TSLA)-14%Quarterly vehicle deliveries and revenue missed estimates.
Source: TradeStation Data
S&P 500, daily chart, showing key technical patterns.

Sector Watch

The table below shows sector performance last month.

Energy+25%
Industrials+14%
Financials+12%
Health Care+10%
Consumer Staples+9.6%
Materials+9%
S&P 500+8%
Technology+7.7%
Real Estate+2.1%
Utilities+1.8%
Consumer Discretionary+1.1%
Communications+0.7%
Source: TradeStation Data

Key Economic Events in October

Below are some key economic events from last month.

  • Job growth and unemployment beat estimates: Non-farm payrolls increased by 263,000 in September, slightly beating forecasts. Unemployment also fell more than expected as leisure and hospitality hiring continued. (10/7)
  • Inflation spikes more than expected: The consumer price index (CPI) rose 0.4 percent between September and August, twice anticipated rate. Food, shelter and medical care drove the increase, even as energy costs eased. (10/13)
  • Homebuilder sentiment cut in half: NAHB’s index of homebuilder sentiment plunged to 38 in October, less than its reading earlier in the year. Buyer traffic and sales outlooks have slowed sharply as mortgage rates increase. (10/18)
  • Inflation hits consumer confidence: Consumer confidence dropped more than expected as Americans worried about inflation before the holidays. There was also a sense of job availability diminishing. (10/28)

What Experts Are Saying

Below are some noteworthy commentaries.

  • Citi sees upside: Citi predicts global equities will gain 18 percent through the end of 2023 because investors are likely to see bargains after multiples contracted this year. (10/6)
  • Jones watching rates: Famed investor Paul Tudor Jones said short-term Treasury yields could give clues on the stock market’s direction. He thinks evidence of a recession could lower borrowing costs, potentially anticipating easier monetary policy by the Fed. (10/10)
  • Deutsche Bank on chipmakers: Deutsche Bank sees “very bearish positioning” in the semiconductor industry. The bank cited weaker demand for PCs and data centers. It also predicted weakness in the group until macroeconomic conditions improve.
  • Inflation dominates earnings: CNBC reported that inflation worries have dominated quarterly reports this earnings season. Companies including PepsiCo (PEP) and Citi (C) noted cost pressures impacting results. The report cited an analysis by FactSet. (10/24)
  • Wilson on the bear market: Morgan Stanley strategist Mike Wilson said the bear market could end next year. Wilson, prominent for anticipating 2022’s decline, noted the S&P 500’s ability to hold its low from June. (10/26)
Meta Platforms (META), daily chart, showing key technical patterns.

Popular Futures Contracts

ProductCurrent
Month
ExpirationNext
Month
1-Mon%
S&P 500 E-Mini (@ES)ESZ22 (Dec)12/16/22ESH23+7.8%
Nasdaq-100 E-Mini (@NQ)NQZ22 (Dec)12/16/22NQH23+3.4%
Dow Jones E-Mini (@YM)YMZ22 (Dec)12/16/22YMH23+14%
Russell 2000 E-Mini (@RTY)RTYZ22 (Dec)12/16/22RTYH23+11%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Wed 11/2Federal Reserve meeting and press conferenceWill Jerome Powell hint at slower interest-rate hikes at the December 14 meeting?
Fri 11/4Non-farm payrollsWill the jobs market weaken, potentially giving the Fed a reason to ease monetary policy?
Tue 11/8U.S. midterm electionsWill Republicans gain seats in Congress and state governments against incumbent Democrats?
Thu 11/10Inflation reportOctober’s Consumer Price Index (CPI) is due one hour before U.S. markets open.
Week of 11/14Last big week of earningsWalmart (WMT), Nvidia (NVDA), Cisco Systems (CSCO) and Home Depot (HD) report in the last big week of earnings season.

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