Weekly Recap | October 9, 2023

October 2-6, 2023 Recap

Equities Break Four-Week Losing Streak

A Turnaround in Sentiment
Stocks closed positive for the week amid a sharp turnaround Friday after nonfarm payrolls jumped the most since January. The news initially rattled investors and briefly sent Treasury yields to their highest in 16 years. Equity sentiment reversed on oversold conditions as Wall Street instead focused on weaker wage growth, as average hourly earnings rose less than expected.

For the Week…
The S&P 500 gained 0.52%, breaking a four-week losing streak. The tech-heavy Nasdaq Composite also posted a positive week, climbing 1.62%, while the Dow Jones Industrial Average ended fractionally lower, down 0.24% for the week.

Strong Payroll Growth
U.S. nonfarm payrolls surged by 336,000 last month, widely topping forecasts for 170,000 and up from an upwardly revised 227,000 August increase (187K originally reported). September payroll gains were well above the 267,000 average monthly increase over the prior 12 months, indicating a hotter than desired labor market from the Fed’s perspective. More positively, as mentioned, workers’ average hourly earnings rose just 0.2% to $33.88 (+0.3% expected). Over the past 12 months, average hourly earnings have increased by 4.2%. The unemployment rate is unchanged at 3.8%.

Weekly Sector Insights
Eight of the 11 S&P 500 sectors ended negative last week, led by pullbacks in Energy (-5.39%), Consumer Staples (-3.10%), and Utilities (-2.90%). Consumer Discretionary (-0.26%) fell the least, while Communication Services (+3.24%), Technology (+2.97%), and Healthcare (+0.97%) posted gains. Communication Services (+44.98%) and Technology (+38.71%) remain at the top of the 2023 leaderboard.

Treasury Yields Advance
Bond prices fell sharply last week as the yield on 10-year Treasury notes advanced, ending Friday at 4.791%, up 0.22% for the week. Following the strong payrolls report the benchmark yield had briefly breached 4.88%, a fresh 16-year high. Yields continue to advance on the Fed’s higher-for-longer interest rate outlook.

The Latest from @CeteraIM

High Yield Spreads

Job Layoffs Drop

Mortgage Applications Fall

Economic Calendar

Monday, October 9
No Major Releases.

Tuesday, October 10
Small Business Optimism, Wholesale Inventories.

Wednesday, October 11
Mortgage Activity, Producer Price Index (PPI), FOMC Sept Meeting Minutes.

Thursday, October 12
Jobless Claims, Consumer Price Index (CPI).

Friday, October 13
Import/Export Prices, Consumer Sentiment (Oct preliminary).

Valuations for small and mid cap stock indexes are at a significant discount to large caps (S&P 500) and the tech-heavy Nasdaq. The S&P 600 small cap index is trading 11.9 times, trailing 12-months earnings, whereas the S&P 500 has a P/E ratio of 20.7 and the Nasdaq’s P/E ratio is 26.2. Valuations don’t drive markets near-term, but they can influence return potential long-term.

^{This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter.}

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^Glossary

^{The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.} 

^{The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.} 

^{The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.} 

^{The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.} 

^{The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.} 

^{The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.} 

^{The Bloomberg US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings have a fluctuating average life of around 8.25 years.} 

^{The Bloomberg US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.} 

^{The Bloomberg US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity.} 

^{The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.} 

^{The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.} 

^{The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index.}

 ^{The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.}

 ^{The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.}

^{The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000.}