September 30, 2024

“Our favorite holding period is forever.”

Warren Buffett

The last week of the third quarter is in the books, here are the numbers: the S&P 500 gained, .46%, the Dow Jones Industrial Average added .60%, the Nasdaq continued moving up .69%. Internationally, the news was even better, the FTSE 100 was up 1.10% and the MSCI-EAFE rose 2.23%. The 2 -year Treasury closed with a yield of 3.557% and the 10-year paid 3,751%.

As Barron’s Conner Smith reported, The Dow Jones Industrial Average notched another record close on an otherwise mixed day for Wall Street last Friday. It’s not often that the Dow’s tech-light portfolio works in its favor. It was the less volatile stocks that shined. The Invesco S&P 500 Low Volatility ETF rose 0.4%, while the Invesco S&P 500 High Beta ETF fell 0.2%. In other words, Wall Street was favoring less risky stocks. Roughly two-thirds of the S&P 500’s stocks rose on the day.

Overall, reflecting caution as we enter the 4th Quarter,  we expect the market to trade in the already established range between now and the end of the year. Any election bump or dump will probably be quickly reversed, and things should settle down by the end of this year.

And the economic news? Friday’s economic data were fairly positive. The Federal Reserve’s preferred inflation gauge — the core personal consumption expenditures price index — came in below expectations on a monthly basis, while the University of Michigan’s consumer sentiment index rose more than predicted. The second and final reading of the University of Michigan’s consumer-sentiment index in September rose to 70.1 — the highest level in five months — from a preliminary reading of 69 released earlier in the month, the university said last Friday. Fed-funds futures now point to a 54% chance that the central bank opts for another half-point cut in November, according to the CME FedWatch Tool.

Inflation is still on the front burner, As Jeffrey Tucker comments, The inflation fight of the last two years seems to have drawn down the rate of price increases, though the battle is far from over. But now the Fed believes it has another problem with which to deal, namely weakness in the labor market. However, as Barron’s Megan Leonhardt reported, Fed Governor Adriana Kugler, speaking at Harvard’s Kennedy School last Wednesday afternoon, emphasized that the recent slowdown in inflation led her to support the decision by the Federal Open Market Committee to cut the federal funds rate by half a percentage point two weeks ago. She stressed that with price growth largely under control, cooling in the labor market means the Fed needs to turn its attention to maintaining healthy employment conditions. “The progress in bringing down inflation thus far, coupled with the softening in the labor market that I have described, means that while our focus should remain on continuing to bring inflation to 2%, we should now also shift attention to the maximum-employment side of the FOMC’s dual mandate,” Kugler said last Wednesday.  “If progress on inflation continues as I expect, I will support additional cuts in the federal funds rate going forward,” Kugler added.

Over across the pond, slower economic growth in top European economies including France and Germany and signs of a drop in inflation towards the ECB’s 2% target could now pave the way for multiple rate cuts over the next six months.

Unemployment numbers? According to Market Watch, the number of Americans who applied for unemployment benefits last week fell to a nearly four-month low of 218,000, reflecting the reluctance of businesses to cut jobs even though they’re no longer hiring many new workers. The remarkably low level of layoffs appears to be a saving grace for the economy. Hiring has slowed sharply, and it’s gotten a lot harder for people to find jobs, but as long as most people are working and spending, the economy should be OK, economists say. Economists polled by the Wall Street Journal had forecast new claims to total 223,000, based on seasonally adjusted figures. The number of new claims looked even better based on actual filings — that is, before seasonal adjustments. New jobless claims dropped in 34 of the 53 states and territories that report these figures to the federal government. No state had an increase of more than 500.

Orders for U.S. durable goods were flat in August, the Commerce Department said Thursday. The result was much better than anticipated. Economists had forecast a 3% fall in orders for durable goods — products made to last at least three years.

Final Thoughts on the economic news, two key dates for economic news are Oct. 4, when the September jobs data will be released, and Nov. 1—the date of the October jobs report, during the FOMC’s premeeting quiet period. This could create an environment for further rate cuts before the end of the year.

In the “glad we are there category”, Natural-gas futures bucked the overall downtrend in the energy market last Friday, with prices ending the session sharply higher on concerns about supplies that contributed to a weekly gain of 6.7%.

What about housing, any improvement? As Market Watch reports, home prices in the 20 biggest U.S. metro areas set yet another record high in July, but the pace of price rises has decelerated significantly as prices and mortgage rates weigh on home buyers. The Federal Housing Finance Agency also showed home prices were up by 0.1% in July when compared to the previous month and were up 4.5% in the past year. The silver lining from this report is that even though home prices continue to reach new heights, the pace of appreciation has significantly slowed over the last few months. “For the third consecutive month U.S. house prices showed little movement,” the agency said. “Gradually declining mortgage rates and relatively flat house prices may improve housing affordability.”

In other news, the House and Senate passed another stop-gap funding measure demonstrating the usual political cowardice. It is obvious neither side wants to be blamed for a government shutdown, so please vote if you believe a course correction is needed, because that is probably the only hope, and I do mean hope, for any substantive changes in fiscal policy.

Mike