The S&P 500 (SP500), one of the most widely followed stock market indices, closed at 4,193.80 points at the end of October, marking a decline of 2.20% for the month. Similarly, the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) also experienced a loss of 2.17% in October.

This third consecutive monthly decline for the S&P 500 is significant as it hasn’t happened since the first quarter of 2020. According to Bespoke Investment Group, this occurrence is rare, with only 9 years since 1928 seeing the S&P 500 fall in each of August, September, and October. The last two times were in 1990 and 2016.

Compared to September, which historically tends to be the worst month for markets, the decline in October was relatively contained. Nevertheless, sentiment remained largely negative, with Wall Street’s benchmark index ending more than 10% below its 52-week closing high, qualifying as a technical correction. The Nasdaq Composite (COMP.IND) also faced a similar negative milestone just a couple of days before the S&P 500.

Various factors contributed to the October market decline. The hotter-than-expected labor, inflation, and GDP data, combined with geopolitical concerns arising from the conflict between Israel and armed group Hamas, affected market sentiment. Additionally, a significant bond sell-off led to the U.S. 10-year Treasury yield (US10Y) hitting 5% for the first time since July 2007. Disappointing quarterly results from members of the “Magnificent 7” further heightened concerns over their outsized valuations and weightage.

On a positive note, October witnessed important developments such as the potential resolution of a six-week strike by the United Auto Workers against Detroit Three carmakers Ford (F), General Motors (GM), and Stellantis (STLA). Furthermore, the oil and gas sector saw major consolidation with two mega-mergers. Exxon Mobil (XOM) announced its acquisition of Pioneer Natural Resources (PXD) for $59.5 billion, and Chevron (CVX) followed suit by buying Hess (HES) for $60 billion.

As we enter November, investors will be eagerly awaiting the Federal Reserve’s next monetary policy decision, which is the penultimate one for the year.

Interactive Brokers’ senior economist, José Torres, highlighted the causes behind the equity indices’ three consecutive months of losses, including elevated interest rates, high valuations, and uninspiring earnings prospects. Despite the challenges, he expressed optimism, stating that Federal Reserve Chairman Powell’s presentation, Apple’s (AAPL) earnings, and Nonfarm Payrolls data may boost market sentiment as we enter a seasonally strong period.

S&P 500 Sector Performance in October

When analyzing the monthly performance of the S&P 500 sectors, all 11 sectors, except Utilities, ended in the red. Energy was the biggest loser with a significant fall of over 6%, mainly due to crude oil price volatility resulting from the Israel-Hamas conflict. Below is a breakdown of the performance of each sector, along with their respective SPDR Select Sector ETFs, from September 29 to October 31:

1. Utilities: +1.23% (Utilities Select Sector SPDR ETF – XLU: +1.29%)
2. Information Technology: -0.07% (Technology Select Sector SPDR ETF – XLK: +0.05%)
3. Consumer Staples: -1.37% (Consumer Staples Select Sector SPDR ETF – XLP: -1.38%)
4. Communication Services: -2.00% (Communication Services Select Sector SPDR Fund – XLC: -1.30%)
5. Financials: -2.62% (Financial Select Sector SPDR ETF – XLF: -2.44%)
6. Real Estate: -2.93% (Real Estate Select Sector SPDR ETF – XLRE: -2.85%)
7. Industrials: -2.97% (Industrial Select Sector SPDR ETF – XLI: -2.98%)
8. Materials: -3.22% (Materials Select Sector SPDR ETF – XLB: -3.17%)
9. Health Care: -3.33% (Health Care Select Sector SPDR ETF – XLV: -3.26%)
10. Consumer Discretionary: -4.51% (Consumer Discretionary Select Sector SPDR ETF – XLY: -5.52%)
11. Energy: -6.08% (Energy Select Sector SPDR ETF – XLE: -5.75%)

Here’s a chart illustrating the year-to-date performance of the 11 sectors and their comparison to the S&P 500:

Conclusion

October marked the third consecutive month of losses for equity indices, mainly driven by factors like interest rates, valuations, and earnings prospects. However, the upcoming Federal Reserve decision, Apple’s earnings, and Nonfarm Payrolls data provide potential for a market rebound. As always, investors should keep a close eye on market developments and adapt their strategies accordingly.