Friday closes out the month of October, which has been a good one for equities. The S&P 500 Index is headed for a gain of nearly 9 percent, which is the best October for stocks in 4 years. It won’t make the top ten list, but this is one of the largest monthly advances in history.
The market absorbed a wide range of positive economic and financial news and marched higher on the week, despite a slow start as reaction to Apple beating both its top and bottom line expectations was tepid. The NASDAQ was up less than 1 percent for the week in Friday trading as a result, however, subsectors did much better. The pharmaceutical sector, as measured by the SPDR S&P Pharmaceutical ETF (XPH), gained close to 4 percent for the week while the biotechnology sector rose nearly 3 percent. Earnings announcements by industry leaders Merck (MRK), Pfizer (PFE) and Biogen (BIIB) helped lift the sectors. Pfizer also revealed that it was in merger talks with Allergen PLC (AGN). Oil and gas leaders Chevron (CVX) and Exxon Mobil (XOM) beat expectations, which will help lift the S&P 500’s earnings growth this quarter, but ConocoPhillips (COP) reported a third quarter loss. Conoco indicated that it would lower its cost structure in the face of continued weakness in crude oil prices, while Chevron said it will lay off about 7,000 workers.
In economic news, the Federal Reserve issued a statement that many market watchers believe demonstrates a more hawkish stance on the part of the central bank. The odds that the Fed will raise interest rates at its December meeting instead of waiting until 2016 have risen above 50 percent. This news sent financials sharply higher on the day, with SPDR KBW Regional Bank (KBW) rising nearly 4 percent.
Although the S&P/Case-Schiller House Price Index showed a 5.1 percent increase versus last year, the housing industry saw two weaker reports. New home sales dropped 11.5 percent in September from a month earlier; an increase was expected. A 2.3 percent drop in pending sales in September also caught market analysts off guard; they were expecting a slight increase there as well. Third quarter GDP missed consensus expectations of 1.8 percent growth, but the first estimate of 1.5 percent growth did come in ahead of the Atlanta Fed’s GDP Now model forecast of 1.1 percent. The number of Americans filing for initial jobless benefits rose slightly this week. Consumer sentiment remains positive in October.
While Mario Draghi insinuated last week that the European Central Bank might engage in further quantitative easing, the Bank of Japan has indicated that it may not increase its current asset purchase program. This sent the yen higher on Friday. In the face of a stronger U.S. dollar, iShares MSCI EAFE (EFA) and the iShares MSCI Emerging Market (EEM) ETFs were both down on the week.