Market Update: October 21, 2024
Economic data for the week was mixed, with positive reports for retail sales, while industrial production and housing starts declined. Jobless claims were decent, considering the negative weather- and labor-related impacts.
Equities were mixed globally, with gains in the U.S. on net, and declines abroad, tied with a pullback in China’s recent rally. Bonds were flattish with little change in the yield curve. Commodities were down for the most part, with lower perceived geopolitical risks pulling down oil prices.
U.S. stocks saw continued gains last week, led by continued reinvigorated strength in small cap stocks over large. By sector, utilities, financials, and materials led the way with gains of roughly 2% or more. Energy was the laggard, falling by nearly -3% upon continued weakness in oil prices. Real estate also gained several percent.
Earnings reports for Q3 continued to roll in with 14% of S&P 500 firms having now reported. Per FactSet, of those nearly 80% have reported a positive earnings surprise and just under two-thirds a positive revenue surprise. The blended earnings growth pace for the quarter Q3 (actual plus expected) has fallen by about a percent from quarter end to now 3.4%. Of the total S&P figure, the ‘Magnificent 7’ companies are expected to grow at a rapid 18.1% clip, with the ‘other 493’ stocks at a meager 0.1%—again demonstrating continued strength from that concentrated technology and communications group—which is expected by FactSet to continue into 2025. In keeping with this, Q3 earnings growth is anticipated to be strongest in technology (16%) and communications (11%), while energy (-26%, along with a similar decline in oil prices) and industrials (-8%) are bringing up the rear. Q3 looks a bit weaker than Q2, but the season is early yet.
Foreign stocks were down for the most part last week, not helped by the stronger U.S. dollar, with gains in the U.K. offset by declines in Europe, Japan, and the emerging markets on net. The ECB cut their key interest rate by another quarter-percent to 3.25%, as expected, representing their first back-to-back easing meetings in over a decade. Noted by the ECB were a disinflationary process moving in the right direction (recently under 2%), but coupled with downside surprises in economic data. Japan has seen falling inflation rates as well, which are seen as making any further monetary tightening this year perhaps less likely. EM nations were mixed but pulled down by decline of several percent in China, which has experienced a sharp degree of both positive and negative volatility in recent weeks as investors attempt to decipher the central government’s plans for stimulus—how much and where it’s targeted. China GDP for Q3 also came in at 4.6% on a year-over-year basis, due to a slowing in exports; this was a tenth below the prior quarter, but a bit better than expected. The stock index in Taiwan fared positively, dominated by Taiwan Semiconductor Manufacturing (20%+ of it), due to continued optimism over artificial intelligence-related names.
Bonds were little changed on the week, with an almost identical U.S. Treasury yield curve as the prior Friday. High yield and floating rate bank loans eked out a slightly better return due to their yield advantage. Foreign bonds were mixed, with the offsetting impact of the dollar.
Commodities generally fell back, along with the stronger dollar, with sharp declines in energy and narrower declines in industrial metals and agriculture, offset by a gain in precious metals. Crude oil prices dropped -8% last week to $69/barrel, as it was reported that Israeli leadership announced to the U.S. that they’ll only strike Iranian military targets, as opposed to nuclear or oil facilities—this immediately lowered the embedded risk premium.
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.