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It’s looking like a mixed open for the equity market this morning as Dow futures are higher, while S&P 500 and Nasdaq futures are in the red. The pace of earnings is really picking up, and it’s only going to get busier in the coming days. One thing we would note is that in a tape that has been weak for the last several weeks, the ability of the market to get back on track yesterday after the late morning sell-off was encouraging.
In fixed income, we’re seeing a bear steepening of the Treasury yield curve as 10-year yields are up 2 bps to 4.86% while the 2-year yield is slightly lower at 5.09%. Crude oil and gold are basically flat at $83.70 per barrel and $1,987 per ounce, respectively.
On the economic calendar, the only major report is New Home Sales at 10 AM. Economists are expecting a modest increase to 681K from last month’s reading of 675K. Mortgage applications were already released, and they showed a decline of 1% compared to last week’s drop of 6.9%
Despite strength in shares of Microsoft (MSFT), which are up over 3.5% in pre-market trading, Nasdaq futures are lower as shares of Alphabet (GOOGL), where results in its cloud unit were weaker than expected, are trading down over 5%. That puts the stock on pace for its weakest downside gap in reaction to earnings since a year ago today when it opened down nearly 8%. In its history as a public company, there have been ten prior days where GOOGL gapped down more than 5% in reaction to earnings. On those days, the stock’s median performance from the open to close has been a decline of 2.0% with gains just three out of ten times.
While GOOGL’s reaction to yesterday’s earnings report has been weak, we’d note that over the last year, the stock has traded down in reaction to earnings three times with declines ranging from 0.2% up to 9.6%, and yet since the start of October 2022, the stock has still managed to rally 45%. One day doesn’t necessarily make a trend.
Turning back to the market, it seems somewhat hard to believe, but through yesterday’s close, the S&P 500 was down less than 1% in October. With just a week left to go in the month, in the chart below we show the performance of the S&P 500 in the last week of October for every year since 1952 when the current version of the five-trading day week began.
The last week of the month has tended to be positive with a median gain for the S&P 500 of 0.64% and gains 63% of the time. For perspective, the average one-week performance of the S&P 500 since 1952 has been a gain of just 0.17% with gains 56% of the time.
Looking at performance another way, the chart below compares month-to-date performance for the S&P 500 through 10/24 (x-axis) to its performance in the last week of the month (y-axis), and the shaded region shows periods when the S&P 500 was down between zero and 2.5% heading into the last week of the month. During these periods, performance was like the last week of October for all years with a median gain of 0.87% and gains 59% of the time. Overall, there is a slight (and we stress slight) inverse correlation between MTD performance heading into the final week of the month and its performance during the last week, but nowhere near enough to even consider making an investment decision about it.
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