October featured a “more of the same” theme with respect to domestic economic data and news. The Federal Reserve cut the Fed Funds rate (as anticipated), the consumer continued to drive the economy, corporate earnings came in higher than expected but continue to decline, wage growth was marginal, and inflation benign. GDP growth for the quarter, at an annualized rate of 1.9%, came in higher than Wall Street anticipated. The trade war pendulum swung towards resolution, with a preliminary deal now expected to be signed in November. BREXIT resolution appeared to be on-again, off-again.
There was again volatility in the rates market, with the 10-year yield falling quickly at the beginning of the month, from 1.66% to 1.52% over the course of a few days. Weak ISM factory order data and bleak manufacturing data, out of Germany specifically and Europe generally, led to the initial rate declines. Rates reversed when a “risk-on” mentality took hold, led by positive speculation concerning trade. The Fed indicated that a pause in lowering rates is now a more likely course of action.
By month end, the 10-year had returned virtually to its starting point for the month. The yield curve steepened, influenced by the reduction in the Fed Funds rate. The 2- to 10-year spread rose from 2 to 15 basis points (bps) by month end. The 10- to 30 -year spread added 4 bps closing the month at 50.