To Summarize: October brought a subtle shift beneath the market’s surface. The S&P 500 (market cap-weighted) finished flat as investors moved away from technology and toward energy, consumer staples, and other sectors generating near-term cash flow. At the same time, borrowing costs continued to climb and producer prices remained elevated. However, resilient consumer spending may give businesses room to preserve their margins.
The big takeaway – As interest rates rise, investors are rotating away from AI-related stocks, but steady consumer spending may help businesses offset higher costs.
In the markets: October told a story of investors beginning to look beyond the market’s largest companies. While the market cap-weighted S&P 500 finished the month flat, its equal weight counterpart gained 3%, and the Dow rose 2.2%. The Nasdaq fell 2.7% as technology lost momentum, declining 4.9%, as, its worst month of the year.[1] Earnings remained resilient, but rising rates and concerns about AI-related credit pushed investors away from AI names in both the U.S. and in emerging markets. As market leadership shifted, energy led with an 11.1% gain and consumer staples rose 9.2%. Even with October’s uneven performance, nearly every major index has remained up by double digits year-to-date.
Borrowing costs keep rising: The 10-year Treasury yield is above 5%, and the 2-year yield has climbed 1.25 percentage points this year as markets anticipate three to four more Federal Reserve (Fed) rate hikes. As a result, the broader bond market is down 1.6% for the year. Higher rates are placing the greatest strain on companies with weaker balance sheets. For example, lenders now charge AI data center company CoreWeave roughly 20 times more than Microsoft to help ensure comparable debt.[2]
Consumers keep spending as costs climb: Retail sales rose 0.8% in September, exceeding expectations, while at the same time restaurants and bars remained strong despite higher menu prices. Meanwhile, core producer prices increased 4.6%, well above the 2.6% rise in core consumer prices, and truckload rates remained 46% above their long-run average. Even with these cost pressures, analysts expect businesses of all sizes to expand their margins over the next year.[3]
Top Headlines: We’re reading about how businesses are putting AI to work, from rising adoption despite growing concerns to productivity gains that haven’t yet reached revenue. We’re also following the apartment market nearing balance and trucking capacity tightening ahead of the holiday shipping season.
Related resources:
- AI: AI business use rising despite growing concern
- AI & Productivity: 75% of AI-using businesses reported improved workforce productivity, but 77% reported no revenue change
- Real Estate: U.S. apartment edges closer to balance as demand gains ground on cooling supply wave
- Shipping & Trucking: Trucking capacity tightening ahead of holiday shipping season
Disclosures
Investment advisory services are offered by Aprio Wealth Management, LLC, a Securities and Exchange Commission Registered Investment Advisor. Opinions expressed are as of the publication date and subject to change without notice. Aprio Wealth Management, LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. This commentary is for informational purposes only and has not been tailored to suit any individual. References to specific securities or investment options should not be considered an offer to purchase or sell that specific investment.
This commentary contains certain forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason. No graph, chart, or formula in this presentation can be used in and of itself to determine which securities to buy or sell, when to buy or sell securities, whether to invest using this investment strategy, or whether to engage Aprio Wealth Management, LLC’s investment advisory services.
Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. Any securities mentioned in this commentary are not FDIC-insured, may lose value, and are not guaranteed by a bank or other financial institution. Before making any investment decision, investors should read and consider all the relevant investment product information. Investors should seriously consider if the investment is suitable for them by referencing their own financial position, investment objectives, and risk profile before making any investment decision. There can be no assurance that any financial strategy will be successful.
Certain investor qualifications may apply. Definitions for Qualified Purchaser, Qualified Client and Accredited Investor can be found from multiple sources online or in the SEC’s glossary found here https://www.sec.gov/education/glossary/jargon-z#Q