Better-than-feared earnings results fueled a rally in U.S. stocks in October.
Of the 52% of S&P 500 companies reporting through October, 71% beat analyst estimates, according to FactSet. This is below the five-year average, but not the disaster some expected.
Notably, mega-cap tech was a weak spot, but the overall market advanced regardless. Investors were pleased with Apple’s results, but Microsoft, Amazon, Alphabet, Tesla, and Meta platforms all declined in October. Meta, more commonly known as Facebook, was down over 30%, accentuating a very difficult year and highlighting that even the tech giants are not immune to changing economic tides.
Chinese stocks declined, pulling down emerging markets stocks overall. During leader Xi Jinping’s reappointment, it became even more apparent that he has amassed nearly complete control and is free to prioritize his political agenda over economic growth and free market liberties. China’s continued Zero-Covid policy also continues to weigh on investors globally, although much of the damage has already reversed this month.
Early in November, the Fed raised rates by 0.75% for a fourth time and suggested the ceiling for rates may be above 5%, which is higher than many had been anticipating. Chairman Powell did say the pace of hikes may slow. Initial reaction in equity markets has been mixed as investors search for clarity on rates. On the bond side, while it has been a difficult year, higher current yields and slower changes from the Fed should help allow for a return to positive returns and more traditional behavior in the asset class.
Republicans have regained momentum for the midterm elections and look to be in a good position to capture both houses of congress. Divided government can be a constructive backdrop for stocks because it leads to less legislation and therefore less uncertainty. While suspenseful for those who are interested, we don’t expect these midterms to have much impact on markets in the near term.