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The worst third quarter in four years was followed by a blowout month. Markets experienced a difficult stretch over the summer, then October surprised everyone with indexes rallying as much as 10%.
Is the October market rally sustainable to the end of the year? And which stocks were the big winners of the month?
International Equities’ Big Increase
In August, the talk on Wall Street was that global-growth was slowing down and stocks were plunging as a result of China-related jitters. Then international markets seemed to shrug off the worries last month as October witnessed some of the best single-month returns in years.
The MSCI index increased by 8% in October, its best return in four years. The European market alone had its best single month gain in six years.
The European rally was supported by comments from European Central Bank President Mario Draghi, who said that the ECB could introduce further easing policy by the end of 2015.
Domestic Stock Rally
In the U.S., statements from the central bank shouldn’t have inspired similar confidence.
After a poor jobs report at the month’s end, U.S stocks dipped, but this didn’t counteract the strong returns during the month.
Furthermore, the Federal Reserve continues to hint at an interest rate hike in December, which would end this era of near-zero interest rates and cheap capital to fund growth.
Consumer Stocks Stumble
Consumer stocks were the clear losers of the month. With holidays approaching, consumer stocks are expected to be strong, however, large restaurant and retail chains lowered expectations for the year after slow consumer traffic in October.
Wal-Mart (NYSE: WMT), Best Buy (NYSE: BBY) and Nordstrom (NYSE: JWN) were among the companies that missed out on the October rally.
Restaurant chains like Buffalo Wild Wings (NASDAQ: BWLD) reported slower customer traffic and missed out on the month’s gains as well. And all of this occurred during football season!
Consumers have every reason to spend less. Wages actually fell. The government reported a disappointing jobs report, indicating that income and personal spending increased only 0.1%.
This does not inspire confidence for this holiday season.
Stock Pattern Looks Like 2011
What should you expect for November? This October market rally isn’t strongly supported and seems likely to falter. Historically, November has been a kind month to investors with a healthy average gain of 2.4% over the past 20 years.
November returns that followed a strong October rally also closed higher seven out of eight times.
What was that one exception? November 2011. Recently the market has eerily resembled the market of 2011. However, the decline in November 2011 was a minor 0.5%. While the rally isn’t likely to continue, after such a strong October, a small dip won’t do too much damage.
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