S&P 500 Grinds to Record Highs Amid October Calm, Defying Fears of Market Volatility

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October has historically been a month of market jitters, with many expecting a bumpy ride. But this year, the S&P 500 continues its steady climb, hitting record highs with little sign of the feared volatility. As of now, the index has logged 45 new record highs in 2024, defying concerns about a potential pullback due to factors like rising bond yields, higher inflation, and economic uncertainty.

At the start of the month, many analysts anticipated that October could bring about a correction, spurred by ongoing macroeconomic challenges such as a possible recession, lingering inflation pressures, and higher jobless claims. But so far, the market has been resilient. Investors seem unfazed by these risks, and the S&P 500 has maintained its upward trajectory, buoyed by positive earnings reports, Federal Reserve rate cuts, and the overall strength of the U.S. economy.

Market Fundamentals Remain Strong

The current rally can be attributed to several key factors. Inflation has been cooling faster than the broader economy has slowed, and while interest rates remain elevated, the Federal Reserve has signaled the start of rate cuts, creating a more favorable environment for growth. Historically, markets respond positively to the early stages of rate cuts, provided a recession does not immediately follow.

Furthermore, GDP growth has exceeded expectations, and credit markets are performing well, suggesting underlying economic strength. These conditions have led many investors to remain bullish, hoping for a post-election year-end rally, despite the typical seasonal volatility seen in October.

The 21-21-21 Market Phenomenon

One of the key trends analysts have noted this year is the so-called 21-21-21 market: the S&P 500 is up 21% for the year, with a price/earnings ratio above 21, and the Cboe Volatility Index (VIX) hovering near 21. This rare combination signals strong performance, and the 21.9% gain thus far makes 2024 the best performing year for the index since 1997.

The rally has been broad-based, with gains spreading beyond the large-cap tech stocks that dominated the first half of the year. Since June 30, the equal-weighted S&P 500 has gained 9.5%, outpacing the more tech-heavy Nasdaq 100, which has risen just 3.1% in the same period. This shift reflects a more balanced market, with investors taking a more discerning approach to stock selection.

High Valuations, but No Immediate Risk of a Pullback

Despite the strong performance, there are signs that the rally could be reaching a peak. The S&P 500’s forward price-to-earnings ratio is currently at 21.8, which is higher than historical averages and suggests that the market is fully valued. In the past, valuations this high have been difficult to sustain, except during periods of extreme market euphoria like the dot-com boom or the pandemic bull run.

However, while high valuations may limit long-term returns, they do not necessarily imply an imminent correction. As long as corporate earnings continue to grow and the Fed remains in easing mode, the market can continue to climb. According to FactSet, third-quarter earnings are projected to grow by around 7% annually, and the outlook for future quarters remains optimistic.

Unusual Volatility

One of the most striking features of the current market is the elevated level of the VIX, which measures expected volatility in the S&P 500. Despite the index hitting new highs, the VIX remains near 21, which is unusually high for a rising market. Typically, a low VIX accompanies a strong rally, but the elevated reading this time reflects uncertainty around upcoming events, such as the 2024 U.S. presidential election and potential geopolitical tensions, especially in the Middle East.

Although this heightened demand for protection against sharp market moves is notable, it doesn’t signal widespread fear. Investors continue to maintain high levels of equity exposure, suggesting confidence in the broader market. According to Deutsche Bank, equity exposure is currently at the 60th percentile, which is just above neutral, and most surveys show declining levels of bearish sentiment.

Cash on the Sidelines: A Misleading Narrative

Despite some speculation that the large balances in money market funds could soon flow into equities, analysts caution against this assumption. Money market assets now total $6.5 trillion, but less than half of that is held by retail investors, and much of it is earmarked for non-equity purposes. As Bank of America points out, wealth-management clients’ cash allocations are already below average, meaning there isn’t much dry powder left to push stocks higher.

However, this doesn’t mean the bull market is in jeopardy. The combination of decent yields on cash and bonds holding their value allows investors to maintain higher equity exposure without feeling the need to rotate out of stocks.

Conclusion: Cautious Optimism for the Rest of the Year

While the S&P 500 has performed remarkably well this year, with gains continuing into October, there are signs that the rally may be slowing. Valuations are high, volatility is elevated, and the market’s resilience is being tested by economic and geopolitical uncertainties. Still, the fundamental drivers of the rally—growing earnings, a dovish Fed, and strong GDP growth—remain intact. Investors should be mindful of potential risks but can continue to expect positive market performance in the near term.

FAA Approves SpaceX Starship 5 Launch for Sunday After Accelerated Review

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The Federal Aviation Administration (FAA) granted a license on Saturday for the much-anticipated launch of SpaceX’s Starship 5, scheduled for Sunday. This approval came earlier than expected, following the FAA’s initial indication in September that it wouldn’t make a decision until late November. SpaceX is now targeting a 30-minute launch window opening at 7:00 a.m. CT (1200 GMT) on Sunday.

The FAA confirmed that SpaceX had “met all safety, environmental, and licensing requirements” for this suborbital test flight, marking the fifth test of the Starship/Super Heavy system. The FAA also approved the Starship 6 mission profile, demonstrating their confidence in SpaceX’s overall launch program.

Mission Overview

The Starship spacecraft and its Super Heavy rocket are part of a fully reusable system designed to carry crew and cargo to destinations including Earth orbit, the Moon, and beyond. For this fifth test flight, which will launch from Boca Chica, Texas, SpaceX aims to achieve two key milestones:

  1. Super Heavy Booster: The booster will return to the launch site for a “catch attempt” by the launch tower.
  2. Starship Vehicle: The Starship itself is expected to make a water landing in the Indian Ocean west of Australia.

In an interesting caveat, the FAA noted that if SpaceX opts for an uncontrolled entry of the Starship vehicle, it must notify the FAA in advance. In this scenario, the vehicle’s loss will be considered a planned event and will not require a mishap investigation.

SpaceX and FAA Tensions

The approval comes amid heightened tensions between SpaceX and the FAA, with SpaceX CEO Elon Musk previously expressing frustration over delays in licensing for the Starship 5 flight. Musk has been critical of the FAA’s regulatory processes, even calling for the resignation of FAA Administrator Mike Whitaker and threatening legal action against the agency. Earlier in the year, the FAA proposed a $633,000 fine against SpaceX for other launch-related issues, further complicating the relationship between the two entities.

In a related development, on Friday, the FAA also approved the return to flight of SpaceX’s Falcon 9 vehicle after reviewing SpaceX’s internal investigation into a mishap that occurred on September 28.

This accelerated approval for Starship 5 marks a significant moment for SpaceX as it pushes forward with ambitious plans to establish a sustainable spacefaring system. The success of the upcoming test flight will be pivotal for future missions, including those aiming to reach the Moon and Mars.

Google Seeks to Delay US Judge’s App Store Ruling Amid Security Concerns

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Google has requested a California federal judge to delay the implementation of a recent court order that mandates opening its Google Play store to increased competition. In a filing submitted on Friday night, Google argued that the ruling, set to take effect on November 1, would introduce “serious safety, security, and privacy risks” to the Android ecosystem. The company, a subsidiary of Alphabet, also emphasized that the order could harm its business operations, prompting it to ask for a pause while it appeals the decision.

The ruling, handed down by U.S. District Judge James Donato on October 7, stems from a lawsuit filed by Epic Games, the developer of Fortnite. Epic successfully argued that Google was monopolizing the Android app marketplace, controlling how users download apps and make in-app payments. The court agreed, declaring that Google’s practices unfairly restricted competition and violated antitrust laws.

The injunction specifically requires Google to:

  1. Allow Android users to download apps from competing third-party platforms or stores.
  2. Permit the use of alternative in-app payment methods.
  3. Prohibit Google from paying device manufacturers to pre-install its Play Store.
  4. Stop revenue-sharing agreements with other app distributors.

If Judge Donato denies Google’s request to stay the injunction, the company plans to ask the 9th U.S. Circuit Court of Appeals to halt the order during its appeal process. Google already filed its notice of appeal to the 9th Circuit on Thursday. The appeals court will ultimately decide on the validity of Donato’s ruling as Google seeks to overturn the antitrust verdict.

This legal battle is one of several high-profile antitrust cases aimed at limiting the dominance of tech giants in digital marketplaces. While Epic Games celebrates this as a victory for competition and developers, Google maintains that such changes could undermine the security and privacy protections it has built into its app store and Android ecosystem.