Stocks in all categories suffered in October as the month saw declines across all major indices. The initial imposition of tariffs hit U.S. company earnings in October as well with rising material costs hindering profits. Aluminum, steel and smaller components were among the items affecting manufacturing costs the most. Several U.S. companies plan to increase prices on their products in order to maintain margins and profitability levels.
Rising U.S. Treasury yields derailed an upward trend in the market, raising borrowing costs for companies. Some analysts believe that operating margins may have peaked in the 2nd quarter as operating expenses such as wages are on the rise. A rotation from growth to value stocks were key trades during the market pullback as buyers favored value.
The drop in equity valuations during October has adjusted the expected price/earnings (PE) ratio for the S&P 500 from 18.8 times to 15.6 times, thus attracting buyers at lower valuations.
Sources: U.S. Treasury Dept., Reuters, Bloomberg
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