It has been a choppy market for October. However, we should see some action in the coming two weeks as we get the jobs data for October next Friday, elections results on 11/5 (hopefully) and then the Fed meeting on 11/7.
Earnings reports will continue in full force over this fortnight and we did get a spark from Tesla on Wednesday which rose over 20% after releasing better than expected earnings. Next week we will see earnings from other market leaders such as Google, Microsoft, Meta, Apple and Amazon which are heavy concentrations in each of the major indices.
The S&P 500 Losing Momentum
The chart of the S&P ETF is below and you can see that the momentum indicators at the bottom of this weekly chart (RSI & MACD), we can see they are flat as a pancake. However, we can still see prices edging higher in the upper right hand corner from the August low. Notable is that the prices look to be forming a wedge or ending diagonal and if that is correct then we should see a swift return to the origin of this pattern. This would mean a decline of 8%+ in the coming weeks but I can’t confirm this scenario without a bit more decline and it is possible to morph into something else less bearish but we should know either way in the coming sessions.
The most influential stocks all report next week and I expect them to put up decent numbers so that may awaken the animal spirits like we saw with Tesla this week.
Bonds Yields Rise in October
You can see in the chart below that the yield curve has flattened in the last month and that is typical when the Fed changes from tightening to loosening and vice versa. There is more talk now that the Fed may not change rates in November and perhaps a strong jobs report next week will cement that outlook.
The 10Yr Treasury Yield
Corrections are complex and have many twist and turns. The rise in yields from the March 2020 low to the high in October of 2023 showed an impulse wave that is likely the first leg up in 10Yr yields for the coming years. This means that we have been correcting that impulse wave for the last year. However, this pullback fell short of reaching the 38.2% Fibonacci level (3.24%) which is normally a minimum correction level for an impulsive advance. Unless the economy is going to grow aggressively next year (or inflation returns) we likely will see a ceiling around 4.5% and then a fall below 4%.
If I am right we will see the 10Yr remain below 5% for most of 2025 and probably into 2026. After that, we should have a steep (normal) yield curve and see 10Yr yields move closer to 6%. A lot of policy changes (central banks and governments) may be on the horizon so it could be a pivotal time for the financial markets. Stay tuned as the next couple of weeks may drop some hints on what is coming next.
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