Published October 6, 2017
… there was nary a sign of concern, nor a hint of trouble. Yet we know October as being one of the worst months for stocks, primarily because the month has spawned a couple of major market crashes. Take those crashes away and October is a typical month in stocks. In 2017 we enter this potentially dangerous month with some interesting data points. For one, the global stock market has registered eleven consecutive monthly gains. If October also proves positive, it will be a record winning streak. Note that after the single other instance of eleven wins, back in 2004, the nearest streak is only seven months.
This comes as global, non-U.S., stocks have managed a full recovery from their recent bear market. What? You didn’t know that stocks were emerging from a bear market? Stocks outside the U.S. logged an almost -30% decline over 18 months from July 2014 to February 2016. We referenced the early 2016 low in U.S. stocks as potentially resetting the bull market clock in a recent article.
This year is setting records for its low level of volatility. As shown in the chart below, this is the second least volatile year on record so far.
Looked at another way, this year has so far been one of almost zero pullback in stocks. The red dots below show the maximum decline, or drawdown, in a given year. So far in 2017, we are tied with 1995 as being the most benign year of the past 37 years.
In short, this low level of volatility will come to an end at some point and normal market volatility will resume. It’s certainly interesting to market players that this low level of volatility has occurred in the year when the Federal Reserve has stopped its ultra-easy monetary policies. No one saw that coming!
On Monday the country awoke to the news of a horrific mass shooting in Las Vegas the previous night. Despite the catastrophe, stocks moved up across the board led by a 152 point (0.68%) gain in the Dow, to all set new all-time highs. News of Nordstrom (JWN) faltering plan to go private drove their shares down over 7% and dragged their competitors (JCPenney, Dillard’s, Macy’s, and Kohl’s) down significantly.
Tuesday, the major indices all crept up modestly to again post new all-time highs while Ford (F), GM (GM), and Fiat Chrysler (FCAU) all posted blowout monthly sales (aided by Hurricane Harvey).
President Trump visited disaster-stricken Puerto Rico on Wednesday and spooked bond markets by saying “We’re gonna have to wipe that out … You can say goodbye to that” referring to the US territory’s crushing municipal debt. Nearly as soon as he said it however, a Whitehouse spokesperson walked in back, although not before a huge increase in volatility in municipal bond trading. Stocks however, still finished barely above flat on the day.
On Thursday, stocks yet again posted all-time highs. Netflix (NFLX) announced a 10% price hike for their most popular plans and investors cheered, bidding shares up 5% on the day.
Friday, stocks opened lower as the employment report showed that the economy lost 33,000 jobs in September, due primarily to Hurricane’s Irma and Harvey. The negative jobs report broke a 90-month / 7-year streak of consecutive gains. Buried in the report however was a 2.9% y-y increase in wages, which sent the odds of December Fed rate increase up to 80%. At the close however, stocks recovered with the S&P500 (SPY) down only -0.1% while the Dow (DJI) was flat and the NASDAQ (QQQ) squeaked out a small gain.
For the week, the major indices all managed to finish with gains just above 1%.
Warm wishes and until next week.