Month in Review: October 2016


• DJIA, S&P 500, and NASDAQ experienced their biggest monthly declines since January and was a third consecutive losing month for the DJIA which hasn’t happened since 2011.

• Global government bonds experienced their largest drop since May 2013. The 10yr U.S. Treasury bond yield shot up meaningfully, from 1.6% to 1.84%, the largest monthly increase since June 2015. The trend of higher yields can act as a ceiling for equity market multiples.

• The upcoming U.S. election is dominating headlines and materially impacting market sentiment. Risk markets have grown soft in sympathy with Clinton’s deteriorating lead due to the fact that Trump’s anti-immigration and anti-trade policies are generally not known to be market/growth friendly policies. A Clinton presidency is seen as much more predictable, while a Trump presidency seems to be anything but predictable.

• Third quarter earnings reports are well underway and have generally exceeded expectations. FactSet reports earnings growth of 2.7% with 85% of the S&P reported. A positive year over year result would break a streak of five consecutive negative quarters of earnings results.

• The dramatic move higher in 3mo LIBOR witnessed in the third quarter continued in October, finishing at its highest mark, 0.89%, since spring of 2009.

• October was the busiest M&A month in 12 years with $248.9 billion in announced deals, surpassing the July 2015 record of $240 billion.

Central Banks

• Central banks pivoting off their dovish postures have contributed to the rise in yields. Likelihood of Fed tightening in December, uncertainty over the ECB bond buying program, and hawkish tones in BOE, BOJ, and PBOC statements have market participants pressing yields higher.

• All four major central banks have indicated that they will likely ‘look through’ initial inflation indications and not act too quickly, supporting the lift in yields.

• A December hike is looking likely at this point with futures markets pricing in a 76% likelihood, the highest level since November 2015, just prior to the December 2015 hike.


• 3Q GDP grew at 2.9%, beating expectations and posting the highest growth since Q3 2014. • October generated 161,000 jobs (vs 175,000 expected) and prior months were revised upward, leaving unemployment at 4.9%. Wages grew at a 2.8% annual rate, the fastest clip since 2009.

• PCE (Fed’s preferred inflation gauge) registered 1.7%, still below the 2% target, while CPI climbed 1.5% and core was up 2.2%. This is the highest core CPI reading since October 2014 but headline CPI is in the midst of the longest streak of less than or equal to 1.5% in 53 years (1963).


• Betting market odds for a Clinton presidency have fallen from 82% to 70% while Trump has risen from 19% to 34% over the past two weeks.

• The Clinton advantage in the Real Clear Politics Average polling data has fallen from 7.1% on 10/19 to only a 1.7% edge on Friday 11/4. This is going to be closer that most people think.

• has odds of a Republican Senate at 34% and a Democratic House majority at 7% coming into election week.

• Theresa May announced her intention to trigger Article 50 and move forward with a ‘hard exit’ in March 2017. The British Pound crashed in response, falling to levels not seen since 1985. The Pound has fallen over 30% versus the USD (-15% trade weighted) since the Brexit vote. To add to the uncertainty, the U.K. high court ruled that the Prime Minister must seek parliamentary approval to trigger Article 50 regardless of what she has indicated.


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