The backdrop for stocks appears to be more favorable with the recent move lower in the 10-year Treasury yield, which may make stocks more attractive.
We are seeing the typical seasonal volatility in October, but the recent swings have been relatively shallow by historical standards, as the buy the dip mentality appears to be in play.
While some investors may be worried about losses at regional banks, the current landscape, at this point, doesn’t appear to have the same size and scope of the regional bank crisis of March 2023, and even during that period, the stock market was relatively resilient. This is another component of the market’s wall of worry.
The stock market’s next big test may be big tech earnings towards the end of October and into November, as investors will be looking for more clarity on how spending on artificial intelligence is leading to profitability. It may be too early to tell but given all of the fears of an AI bubble, this profitability question is expected to take on greater importance in the month ahead.
Friday’s delayed CPI report will be one of the few economic data points for the markets and the Federal Reserve to digest before its late October meeting and interest rate decision. While Friday’s CPI may take on greater importance due to the government shutdown-driven data drought, we still expect the Fed to proceed with another interest rate cut at the late October meeting. We believe the Fed is still focused on the employment side of the equation and it does not want to fall behind on that front.
It’s important for investors to pay attention during any market pullbacks, even the brief ones, especially as we head into November and December, which are historically very strong periods of time for stocks.
