Market Update 10.8.24
Our Investment PerspectiveThe third quarter of 2024 yielded additional gains for the stock market, but with muted contribution from the technology sector for a change. The S&P 500 Cap-Weighted Index rose 5.9% (see Strategas Research chart below), noticeably below the S&P Equal-Weighted Index +9.5%. This discrepancy reflects the underperformance of technology stocks, which dominate the Cap-Weighted Index, and the outperformance of small-caps, which have greater representation in the Equal-Weighted Index.
Bonds returned an average of 5.2% in the third quarter as interest rates declined, mostly in anticipation of the Federal Reserve interest rate cut and evidence that inflation has moderated.
Looking ahead, there is no shortage of potential market-moving factors for the fourth quarter.
Like most investment strategists, we anticipate volatility surrounding the presidential election. Polling predicts one of the closest outcomes in recent history. We are unlikely to know the winner until at least a couple of days after November 5th, as ballots are counted (by hand, in some states) and recounted in close races. It is possible that the race could end up in an electoral college tie, in which the new Congress will be the deciders; the House selects the President, and the Senate selects the Vice President. In that situation, we would not know the winners until January, and they could be from two different parties.
The turmoil in the Middle East is another factor. Worries that the conflict will expand and involve other nations, including the U.S., could impact markets. Oil is already reacting (rising) on the speculation that Israel may attack Iran’s oil and gas facilities.
Year-to-date, investors have factored China’s economic slump into their expectations, but recent aggressive stimulus by the Chinese government could turn that around. What impact this will have on global growth remains to be seen.
We thought we would be including the port workers’ strike in this newsletter, but as of now the strike is suspended until January 15, 2025, with a tentative deal to raise workers’ pay by 62% over the next six years. Hopefully, that will lead to a full settlement because the economic consequences of a long-term strike would be acute.
Other catalysts between now and year-end are the monthly employment and inflation reports. These are our primary clues to the next Federal Reserve interest rate decisions. The strong September month-end employment report steered investors’ forecast to a 25-basis point cut in November, with another 25-basis points to follow in December. We will stay tuned for additional data between now and then. So far it looks like the Fed may have achieved the coveted ‘soft landing;’ i.e., moderated inflation without triggering a recession.
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