Our October Perspective
What’s New
October turned September’s stock market on its head. The S&P 500 slipped 0.87% for the month, as disappointing earnings calls from several large technology companies sparked a sharp selloff in tech stocks on the final trading day. Beneath that modest decline, however, much of the market moved in the opposite direction. The result: the S&P 500 ended October only about 3% below its all-time high, despite the selloff in some of its largest holdings. Nine of its 11 sectors gained ground, led by Energy, Consumer Staples, Utilities, and Health Care, each up roughly 10% or more.
The bond market, last month’s source of fireworks, calmed considerably. The yield on the 10-year U.S. Treasury fell from 5.29% to 4.94%, and the Bloomberg U.S. Aggregate Bond Index gained 2.44%, recovering most of September’s loss. On October 28, the Federal Reserve held its benchmark interest rate steady at 3.75%–4.00%, one month after raising it for the first time since 2023. Oil prices pushed higher still. Brent crude, the global benchmark, briefly topped $135 a barrel early in the month and spent most of October between $115 and $130. Finally, voters headed to the polls on November 3rd for the midterm elections.
Our Perspective
We noted in our last update that a small group of large companies was propping up the S&P 500 while most stocks fell in September. The script flipped for the month of October. Many of the technology and AI-related companies that had led the market came under pressure as investors questioned whether the enormous sums being spent on AI will pay off. The S&P 500 Top 50, made up of the index’s largest companies, fell 3.31%. Meanwhile, the S&P 500 Equal Weight Index, which gives every company the same weight regardless of size, gained 5.00%.
This year’s gains have come from a wider range of companies than the headlines might suggest. The average stock is now outperforming the S&P 500 for the year. Bonds did their part as well, rising as stocks wobbled. The past two months offer a useful reminder that diversification works not only across asset classes but within the stock market too. The stocks that lead today are not always the ones that lead tomorrow, and a portfolio spread across many areas of the market is better positioned to weather the handoff.
Our View
Stock Market
Investors played defense in October. The S&P 500 Dividend Aristocrats, made up of companies that have raised their dividends for at least 25 consecutive years, rose 9.40%. Meanwhile, the S&P 500 Momentum Index, which favors the market’s recent winners, fell 10.04%.
Bond Market
Bonds bounced back in October. As yields fell, bond prices rose, and the Bloomberg U.S. Aggregate Bond Index trimmed its year-to-date loss to just 0.54%. Longer-term bonds, which are more sensitive to changes in interest rates, gained the most, with the Bloomberg U.S. Long Government/Credit Index up 4.40% for the month.
In Focus: Midterms & the Market
Since 1950, the S&P 500 has posted gains in the six months following all 19 midterm elections, averaging nearly 17%, compared with roughly 6% over the same period in other years. Past performance is no guarantee of future results, and over time, markets tend to be driven more by earnings, interest rates, and the economy than by who controls Congress.
Themes Driving Markets
Rising Rates
Long-term interest rates have climbed to levels not seen in about two decades. A firmer economy, persistent inflation and heavy government and AI borrowing are all pushing them up.
Bottom line: Higher yields raise borrowing costs and make bonds more competitive with stocks, but they also point to stronger bond returns ahead.
AI Dependence
AI-related business investment now makes up a larger share of the economy than tech spending did at the dot-com peak. The largest cloud providers are increasingly borrowing to fund it.
Bottom line: As AI carries more of economic growth, a slowdown in spending would be felt well beyond tech stocks.
Stock-Reliant Households
Households hold a record share of their financial assets in stocks, well above the level reached in 2000.
Bottom line: Consumer spending is more tied to the market than ever, so a sharp decline in stocks would weigh more directly on the economy.
Don't miss the year-end deadlines
We break down everything you need to do and know between now and December 31st: deadlines to know, topics and strategies to discuss with your advisor, and to-dos for you before the end of the year.
Sources: S&P Dow Jones Indices LLC., YCharts, FRED.
All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
The S&P 500 Price Return Index is an unmanaged, capitalization-weighted measure comprised of 500 leading U.S. companies to gauge U.S. large cap equities. The Index returns do not reflect any fees, expenses, or adjust for cash dividends. The S&P 500 Equal Weight Index is the equal-weight version of the S&P 500 index. The Index includes the same constituents as the S&P 500, but each company is allocated a fixed weight of 0.2% of the Index total at each quarterly rebalance. The Index returns assume daily reinvestment of dividends and do not reflect any fees or expenses. The S&P 500 Top 50 consists of 50 of the largest companies from the S&P 500, reflecting U.S. mega-cap performance. Index constituents are weighted by float-adjusted market capitalization. The S&P 500® Dividend Aristocrats® measure the performance of S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company. The S&P 500® Momentum is designed to measure the performance of securities in the S&P 500 universe that exhibit persistence in their relative performance. . The Bloomberg U.S. Aggregate Bond Index is an unmanaged, market-value weighted index of U.S. domestic investment-grade debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more. Index returns do not reflect any fees or expenses. The Bloomberg U.S. Long Government/Credit Index tracks US dollar denominated, fixed-rate Treasuries, government-related and corporate securities with maturities equal or greater than 10 years. Index returns provided by YCharts. Index data referenced herein is the property of S&P Dow Jones Indices LLC, a division of S&P Global Inc., its affiliates ("S&P"), Bloomberg Finance L.P. and its affiliates ("Bloomberg") and/or their third party suppliers and has been licensed for use by Manning & Napier. S&P, Bloomberg and their third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
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