Financial Market Roundup
Produced by Fifth Third's Investment Management Group

In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of October.

CENTRAL BANK
POLICIES

The Federal Open Market Committee (FOMC) last met on September 18th and lowered interest rates by 50 basis points leaving their target range for the Federal Funds rate at 4.75%-5.00%. In a prepared statement by the Federal Reserve it was noted that, “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent…” The statement continued and spoke to the decision to lower interest rates by noting, “In light of the progress on inflation and the balance of risks, the committee decided to lower the target range for the federal funds rate by half percentage point…” to ensure, “… supporting maximum employment…” During the month of September market expectations on rates cuts increased with the market expecting three additional 25 basis point cuts for the rest of the 2024.

The European Central Bank (ECB) last met on September 12th and lowered their target interest rate by 60 basis points, the second rate cut this year. In a prepared statement it was noted that future decisions will be: “… based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.” At the end of September, market participants expect two additional 25 basis point cuts from the ECB over the final quarter of 2024.

EQUITY
PERFORMANCE

After falling early in September, most global equity indices rebounded and gave investors positive returns. Domestically, larger companies outperformed smaller companies with the S&P 500 outperforming the Russell 2500. Within the S&P 500, sector returns were mostly positive with eight sectors posting positive returns, with Consumer Discretionary and Utilities posting gains of over 6.0%. On the other hand, three sectors posted losses with Energy lagging all other sectors retreating over 2.5% this past month.

Third quarter 2024 earnings season for the S&P 500 is set to kick off in October with over 55% of companies in the S&P 500 reporting in October. Second quarter earnings detailed actual earnings growth of over 11% as compared to last year’s second quarter results and market the fourth quarter in a row of actual earnings growth for the S&P 500.

The S&P 500 Index rose by 2.1% in September. The blue-chip Dow Jones Industrial Average gained 2.0% over the month. The tech heavy NASDAQ Composite rose by 2.8%. International stocks moved higher with the MSCI All Country World Index of developing and developed market stocks returning 2.4% in September. The MSCI Emerging Market Index surged ahead by 6.7% in September. The MSCI EAFE Index of developed international equities gained 0.9% in September.

INTEREST RATES
AND GROWTH

On September 26th second quarter U.S. GDP was revised higher to 3.0%, above expectations, and well above first quarter’s 1.4% growth rate. The report detailed a strong and resilient U.S. consumer with personal consumption contributing 1.9% of the growth in the U.S. economy in the second quarter.

At this past September’s FOMC meeting the Fed released an update on their Summary of Economic Projections which details the central bank’s outlook on a variety of prospective economic measures. Specifically, investors digested lower inflation projections for 2024 and 2025 paired with increased unemployment projections for 2024 and 2025.

During the month of September most term points in the U.S. Treasury curve moved lower. Specifically, the U.S. Treasury 2-year yield fell 28 basis point to 3.64% while the 10-year U.S. Treasury fell 12 basis points to 3.78%. The results of these changes over the month resulted in an upward slowing yield curve for the first time in over two years, with the 2-year/10-year U.S. Treasury yield spread expanding to a positive 14 basis point.

Mortgage Rates moved lower in September as the Freddie Mac 30-year Primary Mortgage Market Survey fell to 6.08% as of September 26th, down 27 basis points from August 29th.