Financial markets are preparing for a potentially significant week as the Federal Reserve meeting, U.S. employment data, and Apple’s earnings release could shape the trajectory of stocks and bonds for the remainder of the year. October has been marked by volatility, with rising Treasury yields and geopolitical uncertainties weighing on stocks. The S&P 500 index has declined by 3.5% this month, exacerbating losses that have left it more than 10% below its late-July high. The bond market’s performance will likely determine whether the turbulence continues throughout the rest of the year, as higher Treasury yields are seen as a hindrance to stocks. Investors are concerned that yields could rise further if the Fed reaffirms its hawkish stance at the monetary policy meeting on November 1.
The expectation that the Fed will not raise rates in November is priced in by futures markets. However, concerns remain about how economic data points could influence the possibility of another rate hike. U.S. Gross Domestic Product growth was strong in the third quarter at 4.9%, and any signs that the labor market is overheating or that further tightening is necessary to control inflation could contribute to increased volatility. The worries over inflation and restrictive monetary policy could jeopardize the strong growth seen in recent months and persist into the fourth quarter. Additionally, concerns about the growing federal deficit and increased supply may contribute to the bond market’s unease.
Investors are also anxiously awaiting Apple’s earnings release, given the disappointing results from other technology giants during this earnings season. The Nasdaq 100 index, which is heavily weighted towards technology stocks, is down 11% from its peak but still shows a nearly 30% increase for the year. Some investors believe that the recent selling pressure may have subsided, and they anticipate a rebound in the stock market. Historical data suggests that November tends to be a strong month for stock market performance, with an average gain of 1.5% for the S&P 500 since 1945. Furthermore, patterns from previous years indicate that when the index has experienced a decline in August after a 10% or higher gain in the first half of the year, it has consistently increased in the last four months of the year.
Overall, the stock market’s performance for the remainder of the year hinges on a variety of factors, including the Fed’s monetary policy decisions, U.S. economic data, bond market conditions, and individual company earnings. Investors are closely monitoring these factors to gauge whether a late fourth-quarter rally is feasible, particularly given the current oversold technical indicators and expected economic data.
