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Weekly Market Update for September 27, 2024
by Jared Plotz, Director of Research
The world’s largest central banks are not only finally moving, but suddenly going faster than markets had anticipated. The US Fed cut interest rates by a half percentage point last week, while South Africa cut for the first time in four years. The week before, the European Central Bank cut their policy rate for the second time this year, as did Denmark. This week, China cut on Tuesday, Sweden on Wednesday, and Mexico on Thursday. China not only rolled out a comprehensive set of rate cuts, but also reduced the required down payment on second homes to stimulate the key housing markets there. Lower central bank policy rates tend to accelerate global economic growth, which has been slowing since 2021.
The S&P 500 reached a new record high on Thursday. Despite some mixed economic data points – including a big drop in September consumer confidence – the S&P 500 rose +0.62% on the week and the Nasdaq +0.95%. On Monday the S&P 500 was +0.28%, Tuesday +0.25%, Wednesday -0.19%, Thursday +0.40%, and Friday -0.13%. While it’s a common investor adage to “not fight the Fed” when they are easing rates, this time around we are starting at much richer valuation multiples (the aggregate S&P 500 trades nearly 22x its forward expected earnings versus an average of 14x during the start of the last eight cutting cycles). Thus, we are cautiously optimistic, but equity markets may be choppy over the next month as we begin Q3 earnings season for companies. Not to mention, the election is less than 30 trading days away.
In fixed income land, Preferred securities continue to move favorably following the Fed’s rate move, even amidst some steepening in the interest rate curve (long-term rates moving up, short-term down). The 10-Year Treasury, a rate indicator, was up +2bps to 3.76%. The 6-month US Treasury fell -6bps to end the week at 4.38%. The tailwind we described last week continues to blow us along, and we look forward to sharing final Q3 performance numbers soon.
Next Tuesday will bring the August Jobs Openings report (JOLTS), with September nonfarm payrolls out on Friday. Markets will be on the watch given the slight uptick in the unemployment rate over the last year (4.2% in August, still low given historical averages). With the Federal Reserve’s recent shift towards rate cuts, the path forward in rate easing will continue to rely on both inflation and employment data, with the Fed trying to balance its dual mandate (keeping prices under control and aiming for maximum employment).
Have a great start to your autumn season this weekend!
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