September closed out Q3 in the black across all four indices. The Small-cap Russell 2000 eked out a positive month after losing ground in August. The Small-cap story has stalled as investors have continued to invest into the Large-cap value and growth categories. Money Market and U.S. Treasury yields have moved lower.
Utilities (+7.6%), Consumer Discretionary (+7.4%) and Communication Services (+5.6%) were the sector winners for September. Energy (-3.0%), Healthcare (-2.2%) and Financials (-0.8%) brought up the rear for the month.
Fed Chair Powell decided to cut 50bps for the Fed Funds Rate rather than 25bps, somewhat surprising the marketplace. After a brief digestion of the move, markets moved higher into month-end.
S&P 500: Sept +2.02% Q3 +4.36% YTD +20.81%
DOW: Sept +1.85% Q3 +7.25% YTD +12.31%
NASDAQ: Sept +2.68% Q3 +2.57% YTD +21.17%
Russell 2000: Sept +0.29% Q3 +8.61% YTD +9.72%
Sector Performance YTD:
Communication Services +27.9%
Consumer Discretionary +13.2%
Consumer Staples +16.5%
Energy +5.7%
Financials +20.4%
Healthcare +12.9%
Industrials +18.9%
Materials +12.6%
Real Estate +11.5%
Technology +29.6%
Utilities +27.4%
Current U.S. Treasury Yields:
6 Month Bill 4.49%
2 Year Note 4.00%
5 Year Note 3.86%
10 Year Note 4.02%
30 Year Note 4.30%
The Fed and the Economy:
Fed Chair Powell stated after cutting rates, 4.75% to 5% from 5.25% to 5.5%, that he still envisions a soft landing for the economy. Powell is in no rush on lowering rates. The market believes that the Fed will do multiple quarter point rate cuts into year-end in November and December.
The ISM (Institute for Supply Management) Manufacturing PMI (Purchasing Managers Index) printed at 47.2% in September, the same as in August. This marks the sixth consecutive month of manufacturing contraction. It appears that higher costs, anticipated rate cuts and the election outcome all are contributing to the contraction. The Services PMI registered 54.9% in September. This is the highest reading since February 2023’s 55% print. Interest, mortgage and auto-loan rate reductions are a tail wind for services.
The U.S. added 254,000 jobs in September, blowing by the 150,000 estimates. As well, the unemployment rate fell to 4.1%, matching June’s print. Both of these figures reflect a strong economy diminishing recession concerns. That is good news for equities.
Looking Ahead:
September bucked its historical trend of delivering negative performance. The month started out lower across all indices for the first week of trading. The soft August jobs report was one catalyst for the pullback, as was the possibility of just a 25bps rate cut. Dip buying staved off further deterioration. Technology names started the comeback along with Eli Lilly. The market knows more rate cuts are forthcoming, and this is bullish for equities. When 50bps was announced the market hesitated and then marched higher.
Money Market yields have pulled back, chasing cash toward equities. Longer duration fixed income, 3–6-year range, is now an option. Q3 2024 S&P 500 earnings growth is estimated to be in the 5% range and Q4 is projected to be over 12%. Goldman Sachs strategist David Kostin sees 2024 earnings growth at 8.2%. Kostin’s estimate for S&P 500 2025 earnings growth is at 11%.
Staying the course and ignoring the day-to-day market gyrations has proven rewarding and will continue to do so. Global issues could disrupt forward momentum. We remain constructive on the market and believe that it will continue to rise through year-end, albeit with volatility.
GN&Co
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