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“You cannot keep birds from flying over your head, but you can keep them from building a nest in your hair.” – Martin Luther

Morning stock market summary

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It’s been a while and it’s still early in the day, but with futures trading higher as we head into the opening bell, the S&P 500 is on pace for its first back-to-back run of gains in three weeks. Treasury yields are moving lower this morning, and the 10-year yield is barely hanging onto the 4.8% level after breaking above 5% just over a week ago. In international economic data, China released some weak PMI data, and GDP in Europe missed expectations.

Back here in the US, the Employment Cost Index came in slightly higher than expected at 1.1% versus forecasts for an increase of 1.0%.  Besides that report, we still have home price data at 9 AM, Chicago PMI at 9:45, and Consumer Confidence at 10 AM.

There’s never a shortage of strange when it comes to the markets, and October has been no exception.  In a month where geo-political uncertainty in the Middle East moved to the front burner, gold surged (which you would expect), but crude oil, which you would also expect to rally, quickly ran out of steam. The fact that crude oil was unable to get going given the geo-political backdrop reinforces the view that the market isn’t expecting a major escalation/spillover of the current unrest.

With crude oil down just under 9% this month and gold up just under 9%, October is on pace to be just one of 20 other months in the last 40 years that crude fell at least 5% in the same month that gold rallied more than 5%.  In the table below, we list each of those prior periods along with each commodity’s forward three-month performance.  Going forward, crude oil has tended to largely recoup the ground it lost, averaging a three-month gain of 8.9% (median: +5.3%) with positive returns just over two-thirds of the time.  Gold, however, was not as strong.  Over the next three months, it averaged a gain of just 1.2% with gains less than half of the time (42%)  On a median basis, though, gold’s forward three-month performance was a loss of 0.2%.

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