Weekly Market Update for September 20, 2024

by Jim Ulland

The term “having the wind at your back” is used to explain excellent performance whether one is a sailor, cyclist, hiker, runner or investor. This week the Fed acknowledged that the wind direction had changed from a headwind to a tailwind for the investment world. Fixed income had to fight its way through a seemingly endless period of rising rates causing headwinds. Although fixed income securities continued to pay their expected dividends, the price of these securities was pressured. That headwind has now been replaced by a tailwind.

Since the beginning of the year, the market has expected the Fed to reduce interest rates. On Wednesday, they finally did so, by half a percentage point. It is likely that the Fed will continue to reduce rates over the next 24 months or longer. Another one and a half percentage points worth of cuts are now expected by the end of next year. Stocks were blown higher by this new tailwind. The Nasdaq was up over 2% the day after the Fed’s announcement. Our IFI strategy has had a huge move higher, which we think can continue.

When significant changes occur, it is prudent to review how your financial assets are positioned. We recommend moving out of CDs, Money Markets, and US Treasuries and into the preferred stock class of fixed income. Preferred stock is the core security type in our Intelligent Fixed Income strategy (IFI). Doing this type of reallocation will increase your yield and should allow you to benefit from the appreciation as interest rates continue to fall.

Stocks too may receive new funds. Both the S&P 500 and the Nasdaq are hovering near all-time highs. Our equity strategies remain positioned to benefit from the heavy investments in AI technology. According to Larry Ellison, the CEO of Oracle, there is no end in sight for AI demand. He forecasts that Oracle Cloud’s data center footprint will expand from ~160 today to 1,000-2,000 over time. Ellison states, “There’s no slowing down or shift coming…in an ongoing battle for technical supremacy…the race goes on forever to build a better and better neural network.”

During the week, the S&P 500 was up +1.36% and the Nasdaq +1.49%. On Monday the S&P 500 was +0.13%, Tuesday +0.03%, Wednesday -0.29%, Thursday +1.70%, and Friday -0.19%. The 10-Year Treasury, a rate indicator, was up 8bps to 3.74%. The 6-month US Treasury is a favorite of our US Treasury strategy. This week the yield ended down, at 4.46%.

Next week, the biggest economic news will be August’s reading of the Fed’s favorite inflation metric, Core PCE, on Friday. Earlier in the week we will also get additional manufacturing data, housing data, consumer confidence, and revisions to Q2 GDP. These may pique higher interest after economic bellwether FedEx cut its annual guidance today.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.