Market Update

Stocks rallied last week on hopes of a soft landing and a strong start to the Q3 earnings season, with the S&P 500 closing above 5,800 for the first time.

Stocks ended the week slightly lower but still near all-time highs, as the September jobs report surprised markets with stronger-than-expected results. The unemployment rate fell to 4.1% in September and nonfarm payroll gains jumped to 254,000, both better than expectations.

During the last full week of September, equites saw gains, as softer-than-expected PCE inflation data signaled continued disinflation. The PCE Index showed annual headline inflation at 2.2% and core inflation at 2.7%, reflecting minimal monthly price increases of just 0.1% for both measures. Meanwhile, personal income and spending grew by 0.2% in August, and the personal savings rate held at 4.8%, indicating a fair balance of income, spending, and saving.

Last week, stocks hit new all-time highs, driven by the Federal Reserve’s jumbo 50 basis point rate cut, the first in over four years, reducing the Federal Funds Rate to 4.75%–5%. Additionally, in the Fed’s quarterly Summary of Economic Projections, the central bank reflected a more aggressive trajectory for future cuts.

Stocks regained ground last week as inflation data lifted confidence ahead of this week’s highly anticipated Federal Reserve meeting, where the Fed’s first rate cut is expected. The August CPI report showed inflation at 2.5%, slightly below estimates, while core inflation, which excludes food and energy, came in at 3.2%, slightly above forecasts. Similarly, the Producer Price Index indicated stable wholesale inflation in August, consumer sentiment improved for the second consecutive month, reflecting optimism despite election concerns, and the Employment Trends Index indicated stable labor market conditions.

Last week, stocks tumbled as concerns over an economic slowdown intensified, driven by weaker-than-expected job gains in August. The unemployment rate edged down to 4.2%, but only 142,000 jobs were added, falling short of projections.

While some indicators have become more bearish in recent months, we remain cautiously optimistic for a soft-landing scenario, especially as the Federal Reserve appears more committed to cutting rates in the coming months.

Last week, stocks gained ground as July’s inflation came in softer than expected, and retail sales exceeded forecasts, easing recession worries. The Consumer Price Index showed annual inflation at 2.9%, with core inflation at 3.2%, both down from June. The Producer Price Index also reflected a sharp drop in producer inflation. Meanwhile, retail sales surged by 1% month-over-month, led by auto-related purchases, fueling hopes for a “Goldilocks” economy. Consumer confidence rose slightly in August, as consumers cited recent changes in perceptions about the upcoming presidential election.

On the other hand, the labor market is showing signs of softening, with the highest level of insured unemployed persons since November 2021. Despite this, some metrics like the Employment Trends Index suggest this softening represents a normalization of the labor market rather than moving towards a full-blown recession. Q2 earnings have been largely positive, with most sectors surpassing expectations, though recession indicators remain mixed, keeping our market view cautious.