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.
GLOBAL
TRENDS
After restrictive monetary policies helped to curtail persistent inflation, most global economies have begun to lower interest rates to help foster growth and support global labor markets.
Short-term interest rates from most of world’s largest central banks are still elevated relative to the last decade which adds pressures to global financial systems. Additionally, geopolitical conflicts in Western Europe and the Middle East have added to economic uncertainty. Aside from the human tragedy that is always associated with War, these conflicts have also added to risks and volatility for financial markets.
Taken together, recent global and economic actions have kept investors on edge. Despite these concerns, global economic growth remains resilient, driven by consumer spending in most developed nations. This is likely to continue in the second half of 2024, though at a slower rate than historical norms.
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.
POLITICAL AND
REGULATORY TRENDS
The U.S. election season is in full swing with an open election for the White House, and numerous contentious elections for seats in Congress. Various polling outlets suggest the race for the White House and the House of Representatives is close (within the margin of error), while many polls are showing the Republicans are likely to win the Senate.
Former President Donald Trump and current Vice President Kamala Harris held their first presidential debate on September 10th. On Tuesday October 1st J.D. Vance and Tim Walz will partake in the Vice Presidential debate.
INVESTMENT
TRENDS
The September CPI report detailed year-over-year inflation at 2.5%, modestly above target levels but below the July rate of 2.9%. Second quarter U.S. GDP report detailed a resilient consumer and an expanding US economy with a 3.0% growth rate. Finally, the most recent Summary of Economic Projections detailed an expected 2024-year end GDP of 2.0% with inflation measures above the U.S. Central Banks target of 2.0%.
Stresses on the global financial system, cooling-but-persistent inflation domestically and abroad, and geopolitical tensions continue to weigh on investor sentiment. On balance, the head-and-tail winds currently at play suggest there is a potential path for global economic growth, albeit at a slower than initially expected pace.
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