Global Markets Drop in October

Stock markets in the U.S. and around the world dropped in October, as the smaller-cap and tech names were hit hardest. Unfortunately, October’s tough performance was very similar to what happened in September and August.

Specifically, the S&P 500 marked its third-straight month of declines and is down 9.4% over the last three months, its worst three-month period since April to June 2022 and its longest monthly losing streak since March 2020. And NASDAQ just recorded its worst October performance since 2018 and the tech-heavy index is down more than 11% over the last three months, its worst three-month percentage decline since the August-October period in 2022. And the DJIA just recorded its longest monthly losing streak since March 2020.

For the month of October:

  • The DJIA retreated 1.1%;
  • The S&P 500 lost 2.2%;
  • NASDAQ declined 3.4%; and
  • The Russell 2000 dropped 5.4%.

In keeping with U.S. markets, performance in developed markets outside the U.S. in October was dismal too   – as every one of the 38 developed markets tracked by MSCI was negative – just as they were last month too. Performance in the emerging markets tracked by MSCI was pretty bad as well, with 40 of those 46 indices declining in October.

The themes that drove market performance in October once again centered around inflation, the Fed, and the labor market, but geopolitical events in the Middle East rattled markets considerably.

Volatility, as measured by the VIX, trended up slightly in October, beginning the month at 17.61 and ending the month at 18.14, with a couple of spikes over 21 late in the month as geopolitical events took hold.

West Texas Intermediate crude, on the other hand, trended down this month, losing over $6/barrel to end the month at $82.62/barrel.

Market Performance Around the World

Investors looking outside the U.S. saw rotten performance, as all 38 of the developed markets tracked by MSCI retreated this month – with the majority losing more than 4%. Unfortunately, October was just like last month.

Performance for emerging markets was just as dismal, with 40 of the 46 indices retreating for the month – with over half losing more than 4%.

Sector Performance Mostly Negative

For the month of October, sector performance was almost entirely negative, save for the Utilities sector, which squeaked out a gain of about 1%. Contrast that with the months of September and August, which only saw the Energy sector positive.

For a slightly longer-term perspective, July’s sector performance was a continuation of June’s, which saw all 11 S&P 500 sectors gain ground and similar to May, which say 8 of the 11 lose ground.

In addition, for October, the range in sector-returns was decently wide relative to previous months, with Utilities up over 1% and Energy down over 6%.

But since we all could use some better news, 8 sectors performed better in October relative to September. Glass half full?

Here are the sector returns for the month of October and September (two very short time-periods):

GDP Rises More Than Expected

Late in the month, the Bureau of Economic Analysis reported that real gross domestic product (GDP) increased at an annual rate of 4.9% in the third quarter of 2023. For perspective, in the second quarter, real GDP increased 2.1%.

“The increase in real GDP reflected increases in consumer spending, private inventory investment, exports, state and local government spending, federal government spending, and residential fixed investment that were partly offset by a decrease in nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors were housing and utilities, health care, financial services and insurance, and food services and accommodations. Within goods, the leading contributors to the increase were other nondurable goods (led by prescription drugs) as well as recreational goods and vehicles. The increase in private inventory investment reflected increases in manufacturing and retail trade. Within nonresidential fixed investment, a decrease in equipment was partly offset by increases in intellectual property products and structures.

Compared to the second quarter, the acceleration in real GDP in the third quarter reflected accelerations in consumer spending, private inventory investment, and federal government spending and upturns in exports and residential fixed investment. These movements were partly offset by a downturn in nonresidential fixed investment and a deceleration in state and local government spending. Imports turned up.”

Retail Sales Up in September

The U.S. Census Bureau announced the following advance estimates of U.S. retail and food services sales for September 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $704.9 billion, up 0.7% from the previous month, and up 3.8% above September 2022. 


  • Total sales for the July 2023 through September 2023 period were up 3.1% from the same period a year ago.
  • The July 2023 to August 2023 percent change was revised from up 0.6% to up 0.8%.
  • Retail trade sales were up 0.7% from August 2023, and up 3.0% above last year.
  • Nonstore retailers were up 8.4% from last year.
  • Food services and drinking places were up 9.2% from September 2022.

Pending Home Sales Rise

On October 26th, the National Association of Realtors reported that pending home sales rose 1.1% in September. The Northeast, Midwest and South posted monthly gains in transactions while the West experienced a loss. All four U.S. regions had year-over-year declines in transactions.

“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years. Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”

·        The Pending Home Sales Index – a forward-looking indicator of home sales based on contract signings – rose 1.1% to 72.6 in September.

·        Year over year, pending transactions declined 11%. An index of 100 is equal to the level of contract activity in 2001.

Pending Home Sales Regional Breakdown

  • The Northeast PHSI increased 0.8% from last month to 63.1, a loss of 12.7% from September 2022.
  •  The Midwest index expanded 4.1% to 74.3 in September, down 9.2% from one year ago.
  • The South PHSI rose 0.7% to 87.1 in September, retreating 10.7% from the prior year.
  • The West index declined 1.8% in September to 55.3, dropping 12.9% from September 2022.

Compensation Costs Rise

On the last day of the month, the U.S. Bureau of Labor Statistics reported that compensation costs for civilian workers increased 1.1%, seasonally adjusted, for the 3-month period ending in September 2023. Wages and salaries increased 1.2% and benefit costs increased 0.9% from June 2023.

In addition, compensation costs for civilian workers increased 4.3% for the 12-month period ending in September 2023 and increased 5.0% in September 2022. Wages and salaries increased 4.6% for the 12-month period ending in September 2023 and increased 5.1% for the 12-month period ending in September 2022. Benefit costs increased 4.1% over the year and increased 4.9% for the 12-month period ending in September 2022.

Among private industry occupational groups, compensation cost increases for the 12-month period ending in September 2023 ranged from 3.9% for production, transportation, and material moving occupations to 4.5% for service occupations. Within industry supersectors, compensation cost increases ranged from 3.7% for manufacturing to 4.9% for both education and health services and for other services, except public administration.

Compensation costs for state and local government workers increased 4.8% for the 12-month period ending in September 2023, compared with an increase of 4.6% in September 2022. Wages and salaries increased 4.8% for the 12-month period ending in September 2023 and increased 4.4% a year ago. Benefit costs increased 4.7% for the 12-month period ending in September 2023. The prior year increase was 5.0%.

Consumer Confidence Falls Again

The Conference Board Consumer Confidence Index declined moderately in October to 102.6 (1985=100), down from an upwardly revised 104.3 in September.

  • The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – declined to 143.1 (1985=100) from 146.2.
  • The Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – fell slightly to 75.6 (1985=100) in October, after declining to 76.4 in September.
  • The Expectations index is still below 80 – the level that historically signals a recession within the next year.
  • Consumer fears of an impending recession remain elevated, consistent with the short and shallow economic contraction we anticipate for the first half of 2024.

“Consumer confidence fell again in October 2023, marking three consecutive months of decline. October’s retreat reflected pullbacks in both the Present Situation and Expectations Index. Write-in responses showed that consumers continued to be preoccupied with rising prices in general, and for grocery and gasoline prices in particular. Consumers also expressed concerns about the political situation and higher interest rates. Worries around war/conflicts also rose, amid the recent turmoil in the Middle East. The decline in consumer confidence was evident across householders aged 35 and up, and not limited to any one income group.”

Consumers’ assessment of their Family’s Current Financial Situation improved slightly in October.

Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months remain elevated.

Consumer Sentiment Falls Too

The University of Michigan reported that “consumer sentiment fell back about 7% this October following two consecutive months of very little change. Assessments of personal finances declined about 15%, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19%. However, long-run expected business conditions are little changed, suggesting that consumers believe the current worsening in economic conditions will not persist. Nearly all demographic groups posted setbacks in sentiment, reflecting the continued weight of high prices.

Year-ahead inflation expectations rose from 3.2% last month to 3.8% this month. The current reading is the highest since May 2023 and remains well above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations edged up from 2.8% last month to 3.0% this month, again staying within the narrow 2.9-3.1% range for 25 of the last 27 months. Long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.”

Private Sector Growth Edges Higher

S&P Global released the following: “Overview US companies signaled a marginal expansion in business activity during October, following broadly stagnant output seen in August and September. Manufacturers and service providers alike reported improved activity levels as the downturn in demand moderated. The rise in total output was the quickest for three months. 

Demand conditions at manufacturers improved for the first time since April, while service providers saw a slower drop in new orders.

Meanwhile, inflationary pressures softened. Cost burdens rose at the slowest pace for three years, with firms moderating hikes in selling prices at the same time. The rate of charge inflation eased to the weakest since June 2020 and was slower than the long-run series average. Firms were reportedly keen to pass through any cost savings made to customers in a bid to drive sales.

“Hopes of a soft landing for the US economy will be encouraged by the improved situation seen in October. The S&P Global PMI survey has been among the most downbeat economic indicators in recent months, so the upturn in US output growth signaled at the start of the fourth quarter is good news. Future output expectations have also turned up despite rising geopolitical concerns and domestic political tensions, climbing to the joint-highest for nearly one-and-a-half years.

Sentiment has improved in part due to hopes of interest rates having peaked, something which looks increasingly likely given the further cooling of inflationary pressures News Release witnessed in October. In spite of higher oil prices, firms’ input cost inflation fell sharply to the lowest since October 2020, and average selling prices for goods and services posted the smallest monthly rise since June 2020.

The survey’s selling price gauge is now close to its pre-pandemic long-run average and consistent with headline inflation dropping close to the Fed’s 2% target in the coming months, something which looks likely to be achieved without output falling into contraction. That said, the tensions in the Middle East pose downside risks to growth and upside risks to inflation, adding fresh uncertainty to the outlook.”


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