October can be a scary month… especially if little costume wearing trick-or-treaters spook you on Halloween. For investors, October has certainly been the scariest month of the year… especially in the stock market. Sitting with my wife last weekend, I realized what day it was and began to have some flashbacks. “Do you know what day it is?”, I asked. She said Saturday. I said, “Yeah, but, what day of the month?”. She said the 19th and, “Should that mean something to me?” “Guess not, but it means a lot to me,” I said. “It’s the anniversary of Black Monday – the Market Crash of 1987.” That day 37 years ago was the biggest single day fall in the history of the U.S. stock market. I will never forget it. Fast forward to today – another day in October and another anniversary of a stock market crash; October 24, 1929. It was the crash called Black Thursday. On Friday the 25th, the London Herald’s front page headline read, “Wall Street Crash!” The accompanying article was titled, “Black Thursday in America: Stocks Plunge and Eleven Commit Suicide”. The U.S. papers chose to keep that detail out of the headline’s lead article…. Scary days, indeed. And it got worse after Black Thursday in 1929. October 24 was just the first day of the stock market crash of 1929. It was followed by “Black Monday” and “Black Tuesday” of the next week. After the country’s major banks and investment companies bought large blocks of stocks, the market calmed down Friday. Then heavy selling resumed the following Monday the 28th and Tuesday the 29th, when prices declined by a further 12.8% and 12%, respectively.
The catastrophic decline in the stock market in the U.S immediately preceded the worldwide Great Depression. The “Great Crash” is still considered the worst one in history. Widespread panic and confusion sparked rioting on Wall Street. The “Roaring 20’s” bull market had ended. The Dow Jones Industrial Average had reached a high of 381 points on September 3, 1929. After the crash, the market continued to decline, and by July 1932 the Dow had fallen to a low of 41—an 89% drop from its peak. The stock market didn’t revisit the highs seen before Black Thursday until decades later, in November 1954.
Though the Great Crash that set off the Great Depression occurred in October, history also shows that October isn’t such a scary month for the stock market after all. October is known as the “bear market killer” because many bear markets have ended in October and bull markets have started. More bear markets have ended and bull markets started in October than any other month. The most recent was 2022. Of the 12 post-WWII bear markets five have ended in October. Also, of the 12 bull markets since 1957, five have started in October. Again, the last one was October of 2022. So, happy 2nd birthday to the “AI driven bull market”!
TAKING PERSPECTIVE
Proper Perspective: In our hectic and often hard to comprehend world, it is very easy to lose perspective. You may agree it is sometimes difficult to see the big picture. The media often doesn’t help with this, but unfortunately instead encourages us to see things in a most negative light. Here is hopefully a pause to gain positive perspective.
Famous Quote on This Day:
“Evolution is more grounded in my experience than angels.”
~~Barack Obama, 2006
What Happened On This Day October 24, 1929 – As today’s ERPE Excerpts is about, today is the anniversary of Black Thursday. Also, this day in 1945 The United Nations was founded.
MARKET ANALYSIS
INDICATORS OF INTEREST:
Market’s Current Signal: Market in confirmed uptrend. Analysis of the stock market over 130 years of history shows we can view it in terms of three stages – market in uptrend, uptrend under pressure and market correction. I analogize this to a traffic signal’s changing colors from green to yellow and then to red. The current signal is still green. Since the 1880’s, this perspective has led to investment out-performance relative to market indexes. This is due to trend analysis which determines risk reducing, return enhancing market entry and exit points.
The Stock Market Trend: Market in confirmed uptrend. After a market peak July 16 with the SP500 at 5,670, a market correction ensued with a 10% fall to 5,120 on August 5. The market’s trend turned bullish Tuesday, August 13. The fourth day of a new rally attempt confirmed the rally with a follow-through day. with yesterday’s closing price for the SP500 of 5,797 it is back above the July high and near an all-time record high. Th SP500 set its 47th record closing high of the year last Friday -marking a significant milestone in 2024’s stock market performance. This places 2024 in the top 10 for the highest number of record closes in a single year since 1954 as the graph below shows.
Here are key market levels as of Monday, October 21.
Recapping Last Week
As I said in this section of the last ERPE Excerpts, the stock market is resilient. U.S. equities fended off notable semiconductor weakness to finish last week positive, with small caps outperforming due to financial sector strength. The Russell 2000 index rallied nearly 2%, while the S&P500 and Nasdaq Composite each gained less than 1%. Nine of eleven S&P500 sectors posted gains, and while utilities were the best performer, factor performance was far from defensive. The PHLX Semiconductor index plunged more than 5% early last week after reports emerged that U.S. officials may further limit the sale of advance AI chips to designated countries. Also weighing on the sector was a negative earnings report from Dutch chip equipment maker ASML Holding. However, some analysts downplayed fears of a demand slowdown, citing temporary overcapacity at chip factories. The energy sector struggled after crude oil futures tumbled 8.8%. A looming global oil surplus and concerns over China’s waning growth prospects overshadowed potential supply disruption risks from Middle East conflicts. While other commodities seemed unfazed, the strength of the U.S. dollar acted as a headwind to crude. Gold futures jumped more than 2% to reach a fresh record high near $2,735 per ounce. U.S. Treasury yields were slightly lower, rebounding from steeper declines after stronger-than-expected retail sales data and a drop in jobless claims. Manufacturing activity was mixed—industrial production fell in September, while the Philly Fed survey revealed expansion in that region. U.S. homebuilder confidence edged higher this month, while housing starts and building permits fell despite a pickup in single-family home construction. Overall, the U.S. economy’s resilience reinforced expectations for only a 25-basis point rate cut from the Federal Reserve in November.
On the international front, China’s equity markets saw a nauseating amount of volatility as investors tried to make sense of the latest economic data and government stimulus proposals. The country’s trade data for September missed the mark, while tame inflation pointed to continued weak domestic demand. China’s central bank moved to support markets after GDP came in at the lower end of its annual growth goal—at 4.8% for the first nine months of 2024. The bank announced plans to inject 800 billion yuan ($112.38b) for companies to buy back shares, among other measures. Elsewhere, the European Central Bank lowered interest rates for the third time this year, with another quarter-point cut expected by year-end. The UK’s annual headline inflation rate dropped sharply last month, to 1.7% from 2.2%, supporting expectations for a November rate cut. Lastly, Japan’s core inflation slowed in September but remained above the central bank’s 2% target, indicating that further interest rate hikes are on track.
Current View
Sellers came into the stock market Wednesday as the 10-year Treasury yield continued its upward ascent, fueling fears that future rate cuts by the Federal Reserve might not be as aggressive as first thought. The 10-year Treasury yield added another four basis points to just over 4.24%, a three-month high. The yield is up a whopping 64 basis points since hitting a low of 3.6% on Sept. 16. In the major stock indexes, the Nasdaq composite slumped 1.6%, ending a five-session win streak.
Stock market sentiment continues to tilt quite bullish, according to the latest survey of newsletter writers by Investors Intelligence. The bulls climbed to 58.3% last week, up from 57.6%. Readings of 60% or above indicate extreme bullishness and have been seen ahead of stock market pullbacks in the past. It’s a contrarian indicator, meaning when the crowd starts to get bullish, it’s usually the time to be bearish. More on current market sentiment below.
Industry Group Strength: BULLISH. As of yesterday, 146 out the 197 groups I monitor are up year-to-date. 51 are down.
New Highs vs. New Lows: BULLISH. As of now, there were 134 new 52-week highs and 112 new 52-week lows.
Dow Dividend Yield: BEARISH. The current yield for the Dow Jones Industrial Average is 1.83%. The 10-year Treasury now 4.25%. The benchmark interest rate is up from 3.81% a month ago.
Volatility Index: NEUTRAL. Volatility has been volatile. The “VIX” is 19. It is down from 21 two weeks ago. The index is also known as the “Fear Index.” It is considered a contrarian indicator and therefore viewed as bullish as it rises indicating investors are becoming more fearful. The VIX:
Fear / Greed Index: BEARISH. Investors are driven by two emotions: fear and greed. Too much fear can create a condition of oversold/ undervalued stock prices. Too much greed can result in overbought/overvalued stock prices. The AAII Investor Sentiment Index is now neutral. BE FEARFUL WHEN OTHERS ARE GREEDY. At 63, the Fear & Greed Index is down from 72 two weeks ago.
CLICK VIDEO FOR MORE ON THE “FEAR & GREED INDEX”
How CNNMoney’s Fear & Greed Index works
Bull / Bear Barometer: BEARISH. This secondary market indicator should also be viewed with a contrarian perspective. As of yesterday, according to the latest survey of stock market newsletter writers by Investor’s Intelligence (see below), bullish sentiment is 58.3%, up from 43.5% A month ago. The bear sentiment is now 21.7%, down slightly from a month ago. This reflects a decrease in bullish and bearish sentiment over the last two weeks. Consider this a contrarian indicator because the crowd is often wrong at market tops and bottoms. In other words, extreme bullishness has been seen near several market tops in the past, while extreme bearishness has been seen at market bottoms.
Put / Call Ratio: NEUTRAL. The ratio of put-to-call options is 0.51, down from 0.77 two weeks ago. The put-call ratio tracks the mood of what options investors are doing, not just saying. They typically buy puts if they think a stock will decline and calls if they think it will rise. If they’re buying lots of puts, they see the market declining. And if they’re loading up on calls, they’re generally bullish. Historically, market bottoms occurred when the reading spikes to 1.2 or more. Market tops are often made when the reading is 0.6 or less. Note how reliable this is with respect to the February record low coinciding with the market high. Keep in mind this is also a contrarian indicator.
ECONOMIC UPDATES
Global Economic Indicators & Analysis:
POSITIVE INDICATORS
Jobless Claims Down: The number of Americans who applied for unemployment benefits last week fell sharply for the second week in a row to 227,000, reversing a spike in claims earlier in the month after a pair of major hurricanes. New claims declined by 15,000 in the seven days ended October 19 from 242,000 in the prior week, the government said today. Hurricanes Helene and Milton contributed to a surge in new claims in early October to a one-year high. New jobless claims fell in 39 of the 50 states.
Retail Sales Up: Retail sales increased 0.4% in September, with strength in a broad range of categories that overcame weak gas and auto spending, the U.S. Commerce Department said last Thursday. Economists polled by the Wall Street Journal had forecast a 0.3% gain. In August , retail sales rose 0.1%, unrevised from prior estimates. Upward revisions to government data last month clarified the mystery behind the resilient consumer. Americans have much higher incomes than had been believed, mainly from asset income.
New Home Sales Up: Sales of newly built homes in the U.S. surged to the highest level in 17 months as lower mortgage rates brought home buyers back into the market. Sales of newly built homes in the U.S. rose 4.1% to an annual rate of 738,000 in September, from a revised 709,000 in the prior month, the Commerce Department reported today. The number is seasonally adjusted, and refers to how many homes would be built over an entire year if builders continue at the same pace every month. The pace of sales was at the highest level since May 2023. The new-home-sales figure exceeded expectations on Wall Street. Economists surveyed by Dow Jones Newswires and The Wall Street Journal expected new-home sales to rise more modestly to a 720,000 pace.
WEAK INDICATORS
LEI Down: The leading indicators of the U.S. economy fell again in September because of weakness in a few key industries such as housing and manufacturing, but not enough to suggest any sign of major trouble. The leading index dropped 0.5% last month, the Conference Board said Monday. The gauge has fallen in almost every month since early 2022 even though the economy has continued to expand. Economists polled by The Wall Street Journal had forecast a 0.3% drop. Five of the 10 indicators in the survey were positive, four declined and one was flat. The leading index is a gauge designed to show whether the economy is getting better or worse, but it’s been oddly out of step since 2022. “Overall, the LEI continued to signal uncertainty for economic activity ahead and is consistent with The Conference Board expectation for moderate growth at the close of 2024 and into early 2025.” said the senior manager of business cycle indicators.
Beige Book Weak: Yesterday’s Federal Reserve’s latest Beige Book survey of conditions across the country continued to paint a weak picture, with nine out of 12 regional district banks reporting flat or a slight decline in activity. Most districts reported declining manufacturing activity and consumers were reported to be on the hunt for bargains. Housing activity continued to expand across the country, but uncertainty about the path of mortgage rates was keeping some homeowners on the sidelines. The Beige Book is designed to give Fed officials a feel for conditions on the ground ahead of their next interest-rate policy meeting, set for November 6-7.
Existing-home Sales Down: U.S. home sales fell to the lowest level in 14 years, as high home prices and uncertainty over the upcoming presidential election spooked home buyers. Sales of previously owned homes fell 1% to an annual rate of 3.84 million in September, the National Association of Realtors said yesterday. That’s the number of homes that would be sold over an entire year if sales took place at the same rate every month as in September. The numbers are seasonally adjusted. The existing-home-sales figure in September sank to the lowest level since October 2010. The median price for an existing home in September rose 3% to $404,500, as compared with the year before, the highest price on record for the month of September. Home prices are about 50% higher than the same period five years ago.
Industrial Production Down: U.S. industrial production fell 0.3% in September, held down by the strike at Boeing Co and by the two recent hurricanes, the Federal Reserve reported last Thursday. The drop was slightly below expectations of a 0.2% fall, according to a survey by The Wall Street Journal. Capacity utilization slipped to 77.5% in September from 77.8% in the prior month. The capacity utilization rate reflects the limits to operating the nation’s factories, mines and utilities. Economists had forecast a 77.8% rate. The strike at Boeing Co. and the effects of two hurricanes subtracted an estimated 0.6% from production in September, the Fed said.
Call me if you have any questions. I am always happy to help!
For my Market Monthly podcast, click on the link below. I provide a review of global stock market highlights over the past month and preview of the month ahead. Forward insights and perspectives are based on current financial market and economic trends with an emphasis on relevant developments in various areas from Fed policy to company earnings announcements.
Blackhawk Wealth Advisors is the parent corporation of Equity Research & Portfolio Evaluation and Blackhawk Asset Management. It’s Chief Investment Officer is John J. Gardner. John is a Certified Financial Planner (CFP®) and Certified Portfolio Manager (CPM®). As an AIF®, John is also an Accredited Investment Fiduciary.
Blackhawk Wealth Advisors employs a collaborative, multi-generational model by using tax efficient and risk mitigation strategies to maintain your current lifestyle while meeting your long term needs and goals. BWA brings together all aspects of your financial life with the expertise of ERPE and BAM.
Blackhawk Asset Management
At BAM, we take the research we obtain from ERPE and utilize it to manage our clients’ assets. Our founder, John Gardner, CFP®, CPM®, offers high net worth investors experienced investment portfolio management based on a disciplined methodology. John is one of the nation's approximately 400 Certified Portfolio Managers and has managed billions of dollars in equity portfolios over his professional career since 1984. He has created four effective, proprietary portfolios: Thematic Growth, Strategic Income, Diversified Value, and Global Opportunity, which have helped clients prosper.
More Info
Equity Research & Portfolio Evaluation
Equity Research & Portfolio Evaluation (ERPE) utilizes its propietary approach in analyzing investments. Its proven success researching equities is based on a blend of fundamental and technical analysis. ERPE's time-tested Top 10 Tenets guide the investment process to achieve Portfolio Optimization: This is through minimizing risk without sacrificing return.
