Market Update: September 23, 2024

Economic data for the week included the FOMC cutting interest rates more than many expected, beginning a new policy phase of easing. Retail sales and industrial production rose, exceeding expectations. Housing starts increased, recovering from a hurricane the prior month, while existing home sales declined. The index of leading economic indicators continued its negative path, albeit to a lesser degree than the month before.

Equities gained globally in response to the Fed’s rate cut and turn to easing policy. Bonds were mixed, however, with falling short yields offset by longer yields, although emerging market bonds fared well. Commodities gained as crude oil and natural gas inventories fell.

U.S. stock market response to the Fed’s rate cut was mixed on Wed., although Thurs. featured a good deal more positivity, with gains of nearly 2%. By sector, energy, financials, and communications saw the biggest gains, close to 4%, while defensive consumer staples and health care lagged with declines. Real estate also fell back a percent as longer-term interest rates rose and anticipated rate cuts came to fruition, leaving fewer positive expectations.

Foreign stocks saw gains as well, mostly strongly in Japan and emerging markets, with muted results in Europe and the U.K. The Bank of England kept policy rates on hold last week (in an 8-1 vote), as services inflation/wages have continued to rise (in addition to perhaps continued hopes to help the pound regain strength), although the signal for the November meeting was biased toward another cut as economic growth remains a concern. The Bank of Japan also stayed put, noting that upside inflation risks had eased. In emerging markets, Brazil raised rates by a quarter-percent, while Indonesia cut rates. This is indicative of the mixed drivers in emerging markets, although a cutting Fed has tended to be a positive influence on that market segment, due to an easing in financing conditions and often weakening of the U.S. dollar. In EM, Chinese stocks gained nearly 5%, with the Fed effects but also continued lackluster data that point to the rising chances of additional government stimulus. South African stocks gained to a similar degree, with a quarter-point central bank rate cut of their own.

Bonds lost ground for the week. Although short-term U.S. Treasury yields fell along with the Fed’s rate cut, notes/bonds 5 years out and longer saw yields rise a bit. High yield saw the best results for the week, followed by floating rate bank loans, with the assumption that easier policy ultimately aids such companies. While developed market bonds fell back, emerging market bonds gained, especially in local currency terms, along with historical tailwinds associated with an easier Fed.

Commodities rose broadly for the week, led by energy, and minor gains in industrial and precious metals. Crude oil rose 5% to $71/barrel, with help from the Fed rate cut, still-high Middle East geopolitical tensions, and drawdowns of U.S. stockpiles. At the Cushing, OK pricing location, crude oil inventory was noted as approaching ‘tank bottom,’ which is obviously a bit ominous-sounding. Natural gas prices rose to a similar degree as oil, along with storage building less than expected, mixed extreme weather events around the country, as well as potential hurricanes building in the Gulf (this being the peak of hurricane season).

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.