Veteran fund manager delivers startling S&P 500 warning

While it is an election year, politics is now not to any extent further essentially the most effective place where that you're in a position to in finding an October surprise.

Wall Street would per chance per chance be the source of many startling events at this time of the year, when the leaves fall and the scarecrows rise.

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"October has a checkered track record and this year is more likely to have a couple of surprises," says Louis Navellier, founder and chief executive of Navellier & Associates.

The Dow Jones Industrial Average is up about 12% year-to-date, while the S&P five hundred climbed 20% and the Nasdaq advanced 18.3%.

Alternatively, consumers still harbor concerns about the economy.

Analysts writing in Deloitte's September State of the U. S. Consumer report said that whatever the fact that financial sentiment has been improving among higher-income households, it has remained relatively flat among middle- and lower-income households since 2022.

"Stagnating financial well-being sentiment would per chance explain subdued discretionary spending intentions, as households reported focusing on non-discretionary categories and savings," the report said.

Analyst cites 'solid' payroll report

"Spending intentions on housing continue to climb, potentially forcing consumers to search for cost-saving opportunities in other categories," Deloitte said.

On Oct. Four the U.S. Labor Department said that nonfarm payrolls climbed by 254,000 in September, up from a revised 159,000 in August and better than the one hundred fifty,000 Dow Jones consensus forecast.

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"The nonfarm payroll number blew away even the foremost bullish estimates," Navellier said.

"Expected to grow modestly from August's 142K, September came in at 254K, the perfect since May, and the August number used to be revised higher to 159K, an encouraging development after four straight months of revising the prior month's data lower," he added.

Navellier said that it used to be significant that the unemployment rate dropped to Four.1% from Four.2%.

"While stocks are seeing a relief rally, bonds traded down and yields rose as hopes for aggressive rate cuts by the [Federal Reserve] to toughen weak employment trends quickly faded," he said.

"The 2-year yield popped [more than 0.13 percentage point] and the ten-year almost [0.1 point]," he noted. "The upward push in interest rates at the start restrained the stock rally. In a single day, the rhetoric has change into that the following two rate cuts by the Fed are likely simplest" 0.25 percentage point.

"This solid report increases the percentages that the economy will continue to grow above trend in the following quarter," said Jeffrey Roach, chief economist for LPL Financial. "Our base case is the Fed will cut by 1 / 4 point at the following couple of meetings."

Roach said that hours worked edged the total way down to 34.2 in September and were trending below the prepandemic average, which he said is an awfully important metric for growth and productivity forecasts.

"Further, this solid payroll report validates a it may possibly be easy to 1/2 of-point reduction in [the Federal Funds Rate] used to be completely unwarranted," he added. "Fed funds futures market is responding accordingly. Probably essentially the most straightforward caution flag would per chance per chance be the rise in those with a couple of jobs."

The choice of those holding a couple of jobs rose to five.3%, he said, noting that the last time this ratio used to be higher used to be early 2009 when the economy used to be at some point of the Great Financial Crisis.

TheStreet Pro: 'market valuation stretched'

TheStreet Pro's Chris Versace said that the stock market received positive news for the economy on Oct. Four, with a tentative deal ending the port strike and the September employment report "handily trouncing market expectations."

"While we're enjoying the rebound effect that it is miles having on stocks closing out the week because two concerns have been removed, we also believe it should keep the market’s valuation stretched on a couple of fronts," he said.

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Versace discussed the market's current valuation in his Oct. 2 column.

"When valuation is mentioned, many folks simplest focal point on the simple price-to-earnings ratio because it is miles simple, or they lack get entry to to data required to calculate other metrics," he said.

"Uncomplicated will likely be misleading, however it, and that’s why we make a decision to use about a special valuation metrics, to confirm we have got the appropriate context." he added. "Often that context for both the market and individual stocks is history."

Versace pointed to the dividend yield, which is the sum of cash a corporation pays shareholders for owning a share of its stock divided by its current stock price.

"Of the just over five hundred constituents in the S&P five hundred, more than four hundred of them are dividend payers," he said. "Some have better yields than others, while other companies, including our own PepsiCo (PEP) , have a rising dividend policy."

Versace said this information enables investors to examine the aggregate dividend payments for the S&P five hundred and use dividend yield analysis to appear if that market barometer is extended.

He noted the mismatch between a luxurious P/E a couple of (higher) and a luxurious dividend yield (lower). Conversely, he said, when a P/E is affordable (low) the market’s dividend yield will likely be high.

Though the S&P five hundred's dividend has been a little bit higher recently than it used to be on Sept. 30, Versace said it’s still at an awfully low historical level.

"This adds to the view the market is stretched at current levels and supports our near-term view to remain on the sidelines," he said.

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