10/14/2024 Market Strategy
The River is Wide
A rally in stocks broadened last week even as inflation numbers showed some stickiness
Key Takeaways
- With only 30 or 6% of the S&P 500 firms having reported, earnings are nonetheless off to a pretty good start. Some information technology firms had a strong start while some of the big banks had mixed results.
- We caution investors to not read too much into the probability of the election going one way or the other for the Presidency or House or Senate. In our view once the results are in company managements will adjust their strategies for the expected policy implications.
- Last week’s inflation data showed price pressures stronger than expected, and caused some to pare back their expectations of further easing by the Federal Reserve this year.
The stateside stock market rally broadened last week as Q3 earnings season got underway and traders and investors focused on upside surprises in results from several of the largest US banks and economic data over the course of the week that pointed to continued economic resilience.
Last week saw the S&P 500 and the Dow Jones Industrial Average reached new record highs on Friday. The S&P 500 closed at 5815, its 45th record high this year. Equity performance showed a continuation of the broadening in the rally among stocks that moved across sectors, market capitalizations and styles last week.
Stateside bond prices slipped for a fourth week straight as yields rose on inflation data reflected in the CPI numbers that came in somewhat above expectations, suggesting that the Fed’s 2% target still remains elusive for now.
The Bloomberg Dollar Spot Index edged higher last week as futures priced in a slower pace of interest-rate cuts by the Fed through the end of the year becoming more likely. Expectations among traders who earlier looked for two further rate cuts by the Fed of 25 bps each in November and December priced in just 25 basis points of cuts as of Friday’s close. We’d note that some market participants now expect no more Fed rate cuts this year.
In our view the effects of the two recent storms that hit Florida, North Carolina, Georgia and Tennessee could support one more rate cut and perhaps even two more this year. The October non-farm payroll number and the unemployment numbers in the weeks ahead could well carry some weight in catching the Fed’s attention as the earlier hurricane in July that hit Houston.
This week’s Columbus Day holidayabridged week finds the bond market and government agencies closed today. The stock market however is open for business.
We expect investors to be focused on the four days of economic data scheduled for release and S&P 500 Q3 results over the full five-day week with some 44 companies reporting revenue and earnings results. Any guidance from management as to what might lie ahead for their companies in the weeks and months ahead should carry significant weight with market participants as well.
While the election—now less than a month away—could provide some domestic policy risk near term for the markets, it is our view that it will likely have less effect in the near term than some may think. With the expected results of the election as close as indicated by pollsters and political strategists we’d expect the market first to breathe a sigh of relief once the Presidential, the Senate and House election results are known and then begin to formulate views as to the what direction the markets might take.
History in our experience has shown that monetary policy, economic conditions, corporate and revenue and earnings growth generally carry more weight in terms of the direction markets might take in the period that follows most national elections rather than the political arguments in the heat of electioneering before the election.
We believe it’s important for investors to keep expectations rightsized in the current environment of economic transitioning, a normalization process for rates and a watershed-like period of innovation in the current economic cycle and the secular (longer term) period ahead.
Notwithstanding election year nervousness on policies intimated by either Presidential candidate as well as heightened geopolitical risk in the Middle East, the S&P 500’s 45th record closing price of this year suggests to us a market bolstered by economic resilience and healthy earnings growth that may have room to move higher.
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