Cautious start to October

After ending September at record highs, the US stock market turned cautious at the outset of October as geopolitical tensions appeared to temper enthusiasm about the economy.

After closing at a record high last Monday, the S&P 500 (SPX) retreated in the wake of Hezbollah’s missile attack on Israel. At Wednesday’s low, the SPX was down more than 1% for the week, but Friday’s rally after a much-stronger-than-expected monthly jobs report (and a quick end to the port strike) pushed the index back into the green—barely—for the week:

The headline: Geopolitics and economy square off.

The fine print: What looked to be a week that would revolve around the strength or weakness of the jobs market turned out to be a reminder of the role geopolitical uncertainty can play in the markets. There was nothing resembling panic in the stock market, but oil prices jumped more than they have in any week since April 2023.

The number: 254,000, the number of new jobs the US created in September—the highest total since March, and more than 100,000 above the Street estimate.

The scorecard: The SPX led the market, and the Russell 2000 (RUT) lost ground for the fourth week of the past six:

Sector returns: The strongest S&P 500 sectors last week were energy (+6.8%), communication services (+2.2%), and utilities (+1.2%). The weakest sectors were materials (-2.1%), real estate (-1.8%), and consumer staples (-1.6%).

Stock movers: Capricor Therapeutics (CAPR) +53% to $15.21 on Monday, ModivCare (MODV) +22% to $17.64 on Wednesday. On the downside, Heritage Insurance (HRTG) -21% to $12.24 and Prothena (PRTA) -17% to $16.73, both on Monday.

Futures: November WTI crude oil (CLX4) jumped more than $6 last week, closing Friday at $74.38 amid concerns of potential Middle East supply disruptions. An up-and-down week for December gold (GCZ4) ended with the market nearly unchanged at $2,667.80. Week’s biggest gains: December Brent crude oil (BZ4) +9.1%, November WTI crude oil (CLX4) +9.1%. Week’s biggest declines: December cocoa (CCZ4) -14.6%, October ether (ETHV4) -10.4%.

Inflation (CPI and PPI) headlines the economic calendar, but traders will also get a look at the minutes from the Fed’s September policy meeting:

●Monday: Consumer Credit
●Tuesday: NFIB Business Optimism Index, Trade Deficit
●Wednesday: Wholesale Inventories, FOMC minutes
●Thursday: Consumer Price Index (CPI)
●Friday: Producer Price Index (PPI), consumer sentiment (prelim)

Big banks start reporting their numbers on Friday—a reminder that the final earnings season of 2024 is around the corner:

●Tuesday: PepsiCo (PEP)
●Wednesday: Helen of Troy (HELE), AZZ (AZZ), Byrna Technologies (BYRN)
●Thursday: Delta Air Lines (DAL), Domino’s Pizza (DPZ), Neogen (NEOG), Aehr Test Systems (AEHR)
●Friday: JPMorgan Chase (JPM), Wells Fargo (WFC), Blackrock (BLK), Fastenal (FAST), Bank of New York Mellon (BK)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Plenty of market watchers were quick to describe last week’s pullback as evidence of “typical” October seasonal volatility, but the SPX’s Tuesday–Friday net decline was actually out of sync with the market’s historical trends. Over the past 66 years, the SPX has gained ground in the first four trading days of October 63% of the time, with an average net return of 0.6%. The next five trading days (e.g., next week) tended to be a little softer: The SPX posted a net gain for this period 58% of the time, with an average return of 0.2%.¹

More pronounced weakness, when it has occurred in October, has been more common in the latter half of the month. For example, from the 12th trading day of October to the 20th trading day, the SPX posted a net loss more often than a gain (53% of the time), and had an average return of -0.4%.

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¹ Figures reflect S&P 500 (SPX) daily closing prices, 1957–2023. Supporting document available upon request.