The harrowing downward spiral we witnessed a few weeks ago had most bullish investors more scared than the scariest Halloween movies. The market had broken down in mid-month, and at its low, the S&P 500 was down nearly 10% from its mid-September, all-time high. Then the market staged an extraordinary bounce and snapped back straight into Friday’s close. The S&P 500 and Dow even closed out the week at new all-time highs, and the Nasdaq did its fair share of bullish lifting as it rose to its highest level since way back in February of 2000. It was quite a volatile month, but the bulls headed into the weekend stomping their feet and clapping their hands.
The big news that sent stock soaring Friday was that 5-4 vote at the Bank of Japan to launch into yet another aggressive stimulus program that will use millions of yen (roughly $100 million per month) to buy up government bonds in order to prop up Japan’s lackluster economy. News of this massive new jolt of stimulus sent stock markets around the world soaring, and it allowed the U.S. stock market to hit new highs and basically erase the big October swoon that had rattled investors so badly through the middle of October. Bulls were thrilled that October somehow avoided becoming a “typical” October even though it certainly felt like one for a while.
Many factors have come together for the bullish camp this October, and front and center was earnings season. Nearly 70% of U.S. companies topped earnings estimates, which allayed fears that the global economy might be taking a big bite out of U.S. earnings. Add to this the ongoing fall in the price of oil, which by the way, has the average price of a gallon of gas down to under three dollars per gallon, and you can see why consumers and the stock market are acting so happy right now. Low gas prices work almost the same as an immediate tax cut that leaves more money in consumers’ pockets.
These falling oil prices and the strong stock market might explain why the October University of Michigan Consumer Sentiment Report came in at 86.9 versus the expected 86.4 level. We all know that the consumer sector has dramatically lagged the rest of the six-year economic recovery, so seeing confidence levels hit highs not seen since 2007 was another feather in the hat for the bulls as we closed out the month of October. Consumer confidence can help drive the housing market, as well as the more traditional areas like retail sales and autos, so economic bulls are hoping to see a more vibrant economy kick in as we head toward the end of 2014.
With October out of the way, we have that traditionally-strong November/December time of year waiting in the wings, so you can bet that the bulls are hoping we see those traditional mainstays of a Thanksgiving Rally, a Santa Claus Rally and a New Year’s Rally kick in as we head into 2015 as well. What has been impressive about this late-October bounce was the fact that it took so little work from the Federal Reserve to accomplish it. We had one Fed Head comment that maybe the Fed would hold off on ending bond purchases at the end of October, but other than those brief comments, the Fed did not have to do much else.
If anything, the Federal Reserve’s meeting this week was a tad hawkish, in that it allowed the bond purchase program to end with little fanfare, and it made it clear that rate hikes could begin in mid-to-late 2015. One wonders if the Fed knew of the Japan’s (BOJ) stimulus program when the Fed concluded its meeting this past Wednesday. Whatever the case, investors wrapped up the week and the month in a great mood, and as we have stated before, there was not a bull in the crowd complaining. The bond market was smiling as well, as the yield on the 10-year Treasury edged up a bit, but held steady where it closed out the week with a 2.33% yield.
So, on to November we go. Earnings season is wrapping up, and those worries are no longer an issue, oil and gas prices remain low, so the inflation threat is still nonexistent. The only “wild cards” still out there would be global shocks or Ebola spreading. The U.S. elections are as mean-spirited as ever, and while it looks like Republicans will have the advantage during this round, there really are not that many “surprises” that could rattle the stock market. So with that said, the Gorilla would like to wish each and all a relaxing first weekend of November. Stocks are at new highs, football season in in full swing, and the Gorilla hopes you all have a great weekend. We will be back in action on Monday!