Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Now, if you're a fan of NYSE briefs, have no fear you're in the right place. This is not a trick, it's actually a treat. I will be here to keep you updated on the key trends and events driving global markets every week, but you can now also find this content on your favorite podcast platform, Inside the ICE House podcast feed. So as we record Thursday afternoon, here are this week's Market Storylines.
Now we are in the midst of two critical weeks for global markets as investors are digesting a ton of economic data. We're in the peak of the Q3 earnings cycle, and the election is looming next week. Now, coming into today's session, the S&P was trading modestly higher for the month of October and had been trading in essentially a 2% range since the start of earnings season. Now, the gains in the lack of volatility heading into the election were bucking historical trends.
Now, the average return in October in election year since 1972 has been down 1.3% with the index falling over 1.5% in each of the last four election cycles. Now, over the last month, realized equity volatility had remained contained, but you could see the pressure building. The VIX was hovering right around 20 up from the mid to low teens that we've seen throughout much of this year. And last week we discussed the move in the ICE Bank of America MOVE Index, a similar indicator for treasury volatility, which had jumped to 130 from around 90 at the start of the month. So this tells us that the kindling was in place for a volatility swell with the aforementioned catalyst potentially providing the spark in the time where traders will have less risk tolerance given the uncertainty of next week.
Now, that spark came over the last 24 hours. On Wednesday evening, Meta and Microsoft both reported earnings and are trading down over 3%. But I would highlight that neither report was disastrous by any stretch of the imagination with both companies pointing to continued growth. Now at the open, the S&P 500 broke below the low end of the range that I mentioned earlier, and we started to accelerate to the downside with the index off over 1% as we're recording, leaving it down for the month of October. Now, given the heavy weighting of these stocks in the index, they have an outsized impact. But taking a step back, looking at earnings season more holistically after the very strong start to financial earnings, the cycle, the results have been much more mixed with the percent of companies beating estimates and the magnitude of those beats coming in below historical averages for both earnings per share and revenues.
Now, this has been the most apparent for industrials and global companies, which have consistently pointed to overseas weakness. Now, given the year-to-date rally and elevated valuations, the bar was reasonably high for the market to continue to move to the upside in an unabated fashion ahead of next week's election results. And while the numbers haven't been stellar, the messaging from management teams remains cautiously optimistic. Now, the big storyline last week was the move higher in treasury yields, and that has continued, but for the most part, that is happening this week in response to economic data that has pointed to a still resilient environment. The first look at Q3 GDP came in at a very healthy 2.8%, a slight downtick from 3% in the prior quarter, but the consumer spending portion of that was very strong up 3.7%. Now ahead of Friday's BLS employment report, the labor market data has been a bit more mixed with the JOLTS Job Openings falling from last month but the ADP survey and claims were both better than expected, and the most notable thing to me has been been on the wages side of the equation.
Within the ADP survey, there was a continued moderation in wage gains, and this morning's employee cost index fell to 3.9% from 4.1% in Q2, which suggests that while the labor market remains resilient, the tightness is moderating and not causing an inflationary impulse. This is all very much plays into the soft landing narrative, and the slightly negative side of this week's data is that the disinflationary process seems to have stalled out for the moment with readings coming in slightly hotter in both the U.S. and Europe. It's this mix of data that we've seen, which is partially behind the move higher in Treasury yields as market expectations for the pace of rate cuts begins to ratchet down.
Now this week, the Treasury also announces quarterly refunding saying that it plans to maintain the mix of issuance for the next couple of quarters, easing some of the concerns that we discussed last week. But fiscal deficits are still in the back of investors' minds and something that Washington will need to address in 2025, no matter who is in office. Now, once again, the UK was a reminder of how the interplay of markets and government can play out with a surge in guilt yields this week after the release of its updated budget.
So while many of you'll be trick-or-treating Thursday night, there is another round of critical tech earnings, which along with the BLS employment report, will set the tone for Friday's session. This will be the last key piece of economic data heading ahead of the election and the Fed's rate decision next week. Now, if you haven't already, I'd suggest listening to our most recent Inside the ICE House podcast episode where our own Kristin Scholer discussed some of the key policy issues in the election with CNBC's Carl Quintanilla. So we are potentially heading into a very volatile period, but keep in mind the overarching backdrop is positive with a strong economy, monetary policy moving in the right direction, and corporate America well positioned for the future.
Now, once again, thank you for spending some time with us today, and I look forward to taking that journey with you. Remember, you can watch Market Storylines on tv.nysc.com or on the NYSC YouTube channel, or you can listen every Friday on Inside the ICE House podcast feed. Thank you for joining me. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
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