Beacon 'Pointe of View'
November 2023

Authored by :
Michael G. Dow, CAIA, CFA, CPA, Chief Investment Officer
Julien R. Frazzo, Director of Risk Management and Securities Research

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The Quick Facts

  • Stocks posted their third-straight losing month with the S&P 500 down 2.1%
  • The tech-heavy Nasdaq 100 declined 2.0% in October
  • This marks the first three-month losing streak for both indexes since March 2020
  • The Russell 2000 small cap index underperformed, down 6.8%
  • The benchmark 10-year U.S. Treasury yield breached the key 5% level for the first time since 2007
  • The Federal Reserve (“Fed”) left rates on hold, as universally expected
  • Oil fell 10.8% in October despite the conflict in the Middle East

U.S. equities declined in October, with both the S&P and Nasdaq dropping more than 10% from their July highs, entering correction territory.

Despite strong economic growth, the market malaise continued, as mixed 3Q earnings, surging U.S. Treasury yields, geopolitical tensions, as well as uncertainty surrounding the Fed’s future rate trajectory spooked U.S. equities, with the S&P 500 down 2.1% in October. October continued September’s downward trend (-4.8%), which started in August (-1.6%) after five months of gains.

Continued concerns around an impending recession were detrimental to the more domestically oriented Russell 2000 Small Cap Index, down 6.8%, underperforming its large-cap counterpart.

Geopolitical risks came into focus in October following a terrorist attack by Hamas on Israel on October 7. As the world waits to see if the ground invasion of Gaza leads to a deeper regional conflict, it is worth remembering the market historically tends to overlook geopolitical events. However, a wider conflict could impact risk appetite, energy prices, and inflation.

October Asset Class Performance

October Asset Class Performance
As of October 31, 2023. Source: Bloomberg, Beacon Pointe.

The third-quarter earnings season kicked off mid-October and the blended earnings growth of ~2.8% is beating expectations, but the magnitude of those surprises has so far run below the 5-year average. More companies are flagging concerns over the looming threat of an economic slowdown this earnings season, striking a cautious tone. At just over the halfway mark of the reporting period, “weak demand” is among the top trending phrases on earnings calls, according to a Bloomberg analysis of transcripts for the S&P 500 companies.

All sectors were in the red in October except for Utilities, up 1.3%, and Technology, which was flat. The worst performing sectors were Energy and Consumer Discretionary, down 5.8% and 5.5%, respectively. Growth proxy Communication Services and Technology lead the market YTD at 35.8% and 32.6%, respectively, whereas the defensive Utilities and Real Estate are the worst performers YTD, down 13.3% and 8.1%, respectively. Large-cap Growth stocks outperformed Large-Cap Value stocks by 2.1% in October, and the Russell 1000 Growth index is outperforming the Russell 1000 Value index by 25.0% YTD. However, over the last three years, the total return of the Large-cap Value index is ahead of Large-cap Growth by 5.3%. The ESG segment of the market, as measured by the MSCI USA ESG Select Index, was down 3.5% in October, 1.4% worse than the S&P 500. Over the last three years, the ESG index is up 26.0% and 8.4% behind the S&P 500 on a total return basis. Emerging markets equities were down 3.9% in October and are now in the red YTD at -2.1%.

The bond market saw weakness in October, leading to a notable “bear steepening” of the yield curve. October’s losses come amid a rapid rise in Treasury yields, with the benchmark 10-year U.S. Treasury yield breaching the key 5% level for the first time since 2007. Market participants attribute the rise to several factors, including concerns the Fed will keep interest rates higher for longer. The U.S. 10-year yield advanced as much as 37 basis points in October and closed the month at 4.93%. With the Fed at, or approaching, the end of its rate hike cycle, the shorter-end U.S. Treasury 2-year yield rose a modest 4 basis points. On November 1, the Fed left rates on hold, as expected. The key change to the statement was the addition of a reference to tighter financial conditions as likely to weigh on economic activity, as well as credit conditions noted in previous statements, in response to the surge in yields in the past four months. The next two rounds of employment, CPI (Consumer Price Index), and other data will be key, going into the last Federal Open Market Committee (“FOMC”) meeting of the year on December 13.

Oil prices eased in October as markets worried less about potential supply disruptions from the Middle East conflict and thanks to data showing rising output from OPEC and the U.S. The WTI crude was down 10.8% in October to close the month at $81/bbl. On the other hand, Gold is now within reach of the performance of the S&P 500 index in 2023 due to an October rally that has brought the price of an ounce of the yellow metal to the cusp of the $2,000 mark, a level it hasn’t seen since May. Gold spot prices were up 7.3% in October to close at $1,984/Oz, up 8.8% YTD. Digital asset valuations were up in October, with Bitcoin up 28.0% and 109.5% YTD while Ethereum was up 8.0% in October and 51.3% YTD. Bitcoin’s price surge in October reflects rising demand for “digital gold” and optimism regarding a spot Bitcoin ETF coming to market in the U.S.

The U.S. Dollar Index (DXY) was up 0.5% in October and 3.0% YTD. The Fed’s tightening cycle that began in March of last year helped power the U.S. Dollar’s gains as higher rates attracted overseas investors. A strong Dollar tends to hold back stocks and other risky investments, as S&P 500 companies generate more than a third of their revenue from outside the U.S.

Interest rate volatility has been constant since the Fed began its rate-hiking cycle last year. While equity investors look to the well-known CBOE Volatility Index (“VIX”), bond investors focus on the less famous ICE BofA MOVE (“MOVE”) Index, which measures bond market volatility. The MOVE Index had its fourth YTD spike above 140 and remains elevated at 127 compared to historical averages, which reflects the highly uncertain rate environment. The VIX dropped to an 18 handle after an intra-month high at 23, below the fear gauge’s long-term average of roughly 20.

Chart of the Month – U.S. Treasury Yield Curve Bear Steepener

A “bear steepener” is a term commonly used in the context of the yield curve in finance. The yield curve represents the relationship between the interest rates (yields) and the time to maturity of debt for a range of fixed-income securities, typically government bonds. It can be divided into different segments based on the maturity periods, such as short-term, medium-term, and long-term. A bear steepener refers to a specific shape or movement of the yield curve. “Bear” in finance typically refers to a negative or pessimistic outlook. In the context of the yield curve, a bearish sentiment may be associated with expectations of rising interest rates.”Steepener” in this context refers to the change in the slope or steepness of the yield curve. A steepening yield curve means that the yields on longer-term bonds are rising faster than the yields on shorter-term bonds.

This can happen for various reasons, such as expectations of higher inflation, a tighter monetary policy by the central bank, or increased economic uncertainty. A bear steepener can have implications for investors and the broader economy. It may suggest concerns about future economic conditions, and it can impact investment decisions, particularly in fixed-income markets. Investors may adjust their portfolios in response to the changing yield curve shape.

The U.S. Treasury bond yields steepened with 10-year yields rising by +74 basis points and 2-year yields up +14 basis points during the third quarter. It further steepened in October. Yields rose across the curve as the Fed continued its crusade against inflation. The market’s expectations of future rate cuts were effectively pushed to later in 2024. The market believes that the Fed is likely done hiking rates in this cycle, with less than 20% chance that the Fed will raise rates again this year.

US Treasurey Yield Curve Chart - November 2023
As of September 30, 2023. Source: Bloomberg, Beacon Pointe.
Quote of the Month
“If inflation-adjusted interest rates decline in a given country, its currency is likely to decline.” – Ray Dalio


Major Asset Class Dashboard

Major Asset Class Dashboard - October
As of October 31, 2023. Source: Bloomberg, Beacon Pointe.


Macro & Markets: An Update from Beacon Pointe CIO – December 7, 2023 @ 11am PT / 2pm ET

Beacon ‘Pointe of View’ – A Market Update October 2023


Important Disclosure: The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances.

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