The Markets
The Standard & Poor’s (S&P) 500 Index hit a new all-time high last week. The S&P 500 has had quite a year. Despite a sharp downturn in August when investor confidence was ruffled by concerns about economic growth, the Index was up about 20 percent, year-to-date, at the end of last week. The gains were widespread with all sectors of the Index participating, according to data from Fidelity. Last week, investor enthusiasm was bubbling up. There were a lot of reasons for their optimism. First, investors were encouraged by the Federal Reserve’s rate reduction earlier this month and expectations that the Fed will continue to reduce the federal funds rate further to support economic growth. Jacob Sonenshine of Barron’s explained the advantages conferred by the Fed’s actions: “Lower rates would only boost consumer spending on housing and other goods and services—a demand picture that will spur investment from companies, helping the industrial economy specifically. This all means companies’ profit growth could easily extend from next year into 2026. Analysts expect S&P 500 companies, in aggregate, to generate annual sales growth just above 5 [percent] over the coming two years, according to FactSet.” Second, a round of positive economic news helped investors set aside any lingering concerns about economic growth. Brian Evans and Lisa Kailai Han of CNBC reported: “A slate of fresh data supported a solid economy, easing fears that perhaps the Federal Reserve is cutting rates aggressively because of a potential slowdown. Weekly jobless claims fell more than expected, pointing to a steady labor market. Durable goods orders for August were unchanged versus economists’ expectations for a decline. Further, the final reading of second-quarter Gross Domestic Product (GDP) was unrevised at a strong 3 [percent].” In addition, inflation continued to trend lower in August. The Fed’s favored inflation gauge, the personal consumption expenditures index, indicated prices rose 0.1 percent. Megan Leonhardt of Barron’s reported: “The August pace [of inflation] was also lower than consensus calls…The latest data show that the annualized three-month core Personal Consumption Expenditures (PCE) is currently running below the Fed’s 2 [percent] inflation target. It should help erase any doubts that the Federal Open Market Committee made the right call when it slashed benchmark interest rates by a half percentage point earlier this month.” Last week, the S&P hit a new all-time high, as well as a record close. The Dow Jones Industrial Average and Nasdaq Composite Index also rose last week. After rising earlier in the week, yields on many maturities of U.S. Treasuries moved lower on Friday after inflation news shored up expectations for further Fed rate cuts. The Markets
Rates moved lower and stocks moved higher. In 2022, the United States Federal Reserve (Fed) began raising interest rates as it battled high rates of inflation. That year prices rose 8 percent, as measured by the Consumer Price Index. In 2023, prices increased more slowly (4.1 percent), but still advanced at a pace that was well above the Fed’s target of two percent. Last month, prices rose 2.5 percent annualized. And last week, the Fed decided it is time to change course. “On Wednesday, policymakers indicated their rate cut would likely be the first of several through the end of next year. The median forecast among members of the Federal Open Market Committee was that the benchmark federal-funds rate will be at 3.4 [percent] by the end of 2025, compared with the current targeted range of 4.75 [percent] to 5 [percent],” reported Elizabeth O’Brien and Shaina Mishkin of Barron’s. “This marks a significant shift. The Fed has moved from a phase when it kept rates high to combat inflation to one where it is lowering them to support the labor market and the broad economy.” As borrowing costs move lower, other interest rates are likely to follow. As a result, consumers, investors, and business owners may have opportunities to:
Major U.S. stock indices rose on Thursday, following the Fed’s rate cut. “The S&P 500 climbed 1.7 [percent]—notching its 39th record in 2024 and extending this year’s surge to about 20 [percent],” reported Rita Nazareth of Bloomberg. “The Fed’s bold start to cutting interest rates and its determination not to fall behind the curve re-ignited hopes the central bank will be able to avoid a recession. Data Thursday showing a slide in jobless claims to the lowest since May signaled the labor market remains healthy despite a slowdown in hiring.” Stocks gave back some gains on Friday but finished week higher. Yields on U.S. Treasuries were mixed over the week. The Markets
There was a lot of good news last week! Inflation continued to trend lower. The Consumer Price Index showed that inflation was 2.5 percent year over year (yoy) in August. That’s lower than economists had expected, and a significant decline from July’s 2.9 percent. Food and energy prices have been falling faster than some other prices because the core CPI, which excludes food and energy, showed a 3.2 percent increase over the last 12 months. The biggest price increases were for shelter (+5.2 percent yoy) and automobile insurance (+16.5 percent yoy). Consumers are happier. The University of Michigan’s Consumer Sentiment Survey found that optimism is on the rise. “Year-ahead expectations for personal finances and the economy both improved as well, despite a modest weakening in views of labor markets. Sentiment is now about 40 [percent] above its June 2022 low, though consumers remain guarded as the looming election continues to generate substantial uncertainty,” reported Surveys of Consumers Director Joanne Hsu. “Year-ahead inflation expectations fell for the fourth straight month, coming in at 2.7 [percent].” Household net worth is up in the United States. Last week, the Federal Reserve reported on the financial well-being of households and nonprofit organizations at the end of June 2024. Over the last decade household and nonprofit net worth has risen from $85 trillion (2Q 2014) to $164 trillion (2Q 2024). Vince Golle of Bloomberg reported: “U.S. household wealth reached a fresh record in the second quarter, fueled by a steady rise in the value of real estate and Americans’ stock holdings...The value of real estate held by households climbed about $1.75 trillion, the most in a year, while the value of equity holdings rose about $662 billion.” It’s important to note that not all Americans participate equally as wealth grows. The top 10 percent of households hold 67 percent of all household wealth, while the bottom 50 percent hold just 2.5 percent, according to the St. Louis Federal Reserve. Stocks and bonds had a good week. Last week, major U.S. stock indices moved higher, and U.S. Treasury bonds rallied as yields on all maturities of Treasuries moved lower. The Markets
Investing in September can be like biting into a jelly doughnut and finding boiled cabbage—full of unwelcome surprises. “History suggests September is the worst month of the year in terms of stock-market performance,” reported Isabel Wang of Morningstar. The Standard & Poor’s (S&P) 500 Index “has generated an average monthly decline of 1.2%...dating back to 1928, according to Dow Jones Market Data.” One reason for the sharp stock market decline last week appeared to be concerns that the Federal Reserve may have waited too long to lower rates. During the week, economic data continued to present a mixed picture of the U.S. economy. The employment report released on Friday showed the United States added about 142,000 jobs in August—a significant increase from July—and that average hourly earnings were up 3.8 percent year over year. In addition, the unemployment rate ticked lower to 4.2 percent. However, the report wasn’t quite as rosy as those numbers suggest. Fewer jobs were created than economists had predicted and “downward revisions from the two previous months suggest that the labor market is cooling faster than the initial data may indicate,” reported Lauren Kaori Gurley and Rachel Siegel of The Washington Post. The information has some pundits speculating that Fed officials may opt for a larger rate cut than originally anticipated at the Fed meeting in September, according to CME FedWatch. On Friday, Federal Reserve Governor Christopher Waller said he support a September rate cut and was “open-minded about the size and pace of those reductions,” reported Ann Saphir of Reuters. In recent weeks, investors have been feeling quite bullish, according to the AAII Sentiment Survey. During the last two weeks of August, more than 50 percent of survey participants indicated they expected the stock market to rise over the subsequent six months. The level of optimism among survey participants came close to the survey’s all-time high (52.9 percent on December 20, 2023) and remained well above the historical average of 37.5 percent. Last week, investor sentiment shifted. Fewer participants were bullish – and fewer participants were bearish. The number of respondents who were neutral increased, which means they think stock prices will remain relatively unchanged over the next six months. By the end of last week, major U.S. stock indices had moved lower, while bond markets rallied. U.S. Treasury yields fell across the yield curve and finished the week with the yield on the benchmark 10-year U.S. Treasury above the yield on the 2-year U.S. Treasury for the first time since July 2022, reported Connor Smith of Barron’s. When markets are volatile, as they were last week, it’s normal for investors to worry. Before making any changes in response to short-term market fluctuations, remember that historical performance supports the idea that staying invested is a sound way to pursue long-term financial goals. If you have any questions about recent market volatility or your investments, please get in touch. The Markets
After gyrating wildly throughout the month, major U.S. stock indexes finished August higher. Despite a lot of uncertainty and some dramatic ups and downs, the Standard & Poor’s (S&P) 500 Index rose 2.3 percent in August, while the Dow Jones Industrial Average gained 1.8 percent to close at a record high. It was the fourth consecutive month of gains for both indexes, reported Connor Smith of Barron’s. The month’s most remarkable comeback belonged to the Nasdaq Composite Index which eked out a 0.6 percent gain for the month. “That's a shocking turnaround, given the Nasdaq entered correction territory early in the month…,” reported Smith. (A correction is a decline of at least 10 percent.) As sentiment calmed, the CBOE Volatility Index (VIX), which gauges how volatile investors expect the market to be over the next 30 days, moved lower. “Wall Street’s ‘fear gauge’—the VIX—dropped to 15. That’s after an unprecedented spike that took the index above 65 during the Aug. 5 market selloff,” reported Rita Nazareth of Bloomberg. Why did investors seem to regain their confidence? There was some good economic news last week that proved to be just what markets were hoping to see. The data were strong enough to allay fears the economy might weaken too fast, but not so strong they might cause the U.S. Federal Reserve (Fed) to change its mind about lowering the federal funds rate in September. Here’s what happened:
Last week, major U.S. stock indices moved higher. Yields for U.S Treasuries with shorter maturities moved lower over the week, while yields for longer maturities moved higher. |
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