Stocks pulled back in October: the S&P 500 had its poorest month since May, retreating 1.98%. The Q3 earnings season proved disappointing, just as many analysts had warned. Elsewhere, the unemployment rate fell and home values continued to rebound. Our service and manufacturing sectors seemed to be expanding again. Oil prices dropped along with gas prices. Finally, “superstorm” Sandy closed trading at the NYSE for two days and left flooding and destruction throughout the Tri-State Area.1
DOMESTIC ECONOMIC HEALTH
The unemployment rate ticked up to 7.9% in October, having dipped to 7.8% in September. That was because more Americans returned to the job hunt. Labor Department revisions showed the economy adding an average of 173,000 jobs per month in August, September and October; the October gain was 171,000; a better showing than the five-figure monthly payroll expansions seen earlier in the year.2
The nation’s two most-watched consumer polls showed confidence rising: the Conference Board’s October survey improved 3.8 to a mark of 72.2 (the highest since February 2008) and the University of Michigan’s final October survey rose to 82.6, a 61-month peak. Consumers were in a buying mood, and they weren’t just spending more of their incomes on gasoline. Households increased spending by 0.8% in October, with incomes rising 0.4% and the savings rate heading to an 11-month low of 3.3%. The Commerce Department also said that consumer spending had increased 2.0% in the third.3,4,5
A “superstorm” named Sandy, a ferocious product of a tropical hurricane meeting a winter jet stream, forced a two-day closure of the stock market toward the end of the month. IHS Global Insight says Sandy may cause as much as an 0.6% drag on U.S. GDP in the fourth quarter; it estimates the storm did $20 billion in real estate damage and will result in $30 billion in lost business.11
Gold ended October at $1,719.10, with prices falling 3.1%; it remained up 9.7% YTD. Silver slipped 6.5% in October, copper 6.4%, platinum 5.5% and palladium 4.8%. Natural gas gained 11.2%, but oil fell 6.5% and wrapped up last month at just $86.24 a barrel. Heating oil lost 3.1%, RBOB gasoline fell 9.9% on the month, and retail gasoline prices also descended 7.0%. Some key crops were also among the October losers: corn, -0.2%; cotton, -0.8%; wheat, -3.5%; coffee, -10.9%.17,18
So much is up in the air as we enter November. Who will win the presidency, and what will happen with health care reforms, the debt ceiling and the Bush-era tax cuts? Will the present lame-duck Congress punt the issue of the fiscal cliff to the incoming one, arriving at a compromise for the short term? Or will the scheduled tax hikes and spending cuts be allowed to happen in full? Will Wall Street turn merely cautious in the face of all this, or bearish? There is still a surprising amount of bullish momentum, aided by recent employment, manufacturing, housing and retail data. This data stream was not quite positive enough to overcome the letdown leveled by the Q3 earnings season; indicators will need to show additional strength to ease Wall Street’s collective anxiety this month.
This article prepared in conjunction with Peter Montoya.
1 - money.cnn.com/data/markets/sandp/ [10/31/12]