Nov. 1, 2018

October was an extremely volatile month with 500-point daily swings being the norm rather than the exception. Stocks climbed the last day of the month, boosted by the latest earnings reports and the largest nominal wage increase in a decade as reported by the Labor Department’s Employment Cost Index. The market also digested the ADP payrolls report, which showed the US economy added 227,000 jobs versus the estimate for 189,000.

Much of the year’s stock market gains have been pared back in October but are still holding on to positive territory. The Dow, S&P 500 and NASDAQ closed the month at levels keeping them in the black for 2018 although during the month they all reached a level that would constitute correction territory, defined as a 10% drop from recent highs.

The markets are dealing with conflicting economic indicators, a market that has been at extremely high levels, and a tightening Federal Reserve. Typically, that is a recipe for volatile stock prices.

Generally, the markets may need to see a capitulation on the part of traders and short-term investors, to truly achieve a bottom, before the stock market can constructively head higher. Capitulation is when investors give up any previous gains in any security or market by selling their positions during periods of declines. A market correction or bear market often leads investors to capitulate or panic sell. The term is a derived from a military term which refers to surrender.

The bright side is that many market participants say that the market is overly worried about the economy falling into recession and that has led to so-called oversold conditions in equity benchmarks.

Year to date the Dow, S&P 500 and NASDAQ are all in positive territory at 1.60, 1.43 and 5.83 percent, respectively, while the 10-year Treasury is yielding 3.12 percent.