Soft Start To The Fourth Quarter

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Equities generate small gains in the first week of the 4th quarter as an election looms.  Last week's Labor Report showed the largest month-over-month gains in jobs in 6 months.  September did see a considerable spike in Government jobs added, so next month's report will be interesting to watch to see if that becomes a trend.  The report was received with cheer from Wall Street.  Just one day ago - prior to the Labor Report, the market was showing a 68% probability of another 50 basis point rate cut in November.  Now, after the release of the report, there is only a 5% probability of another 50 bps rate cut.

Meanwhile, there are still concentrations among global equity markets.  Currently, global markets are showing high concentrations in companies among the top 10 of each market in terms of earnings and market cap. We have seen this play out before in 2000 when technological revolutions led to high concentrations in equity markets.  As equity valuations are definitely stretched, it's prudent to keep portfolios diversified instead of taking on more risk at this juncture.  When the market has been up by more than 20% heading into the last quarter of the year, the month of October is negative 7 out of 9 occurrences.  Diversification will help if October ends up being a typical volatile month.

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