Market Update – October 14th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Financial Markets

Stocks rallied last week on optimism surrounding a potential soft landing for the economy and a strong start to the Q3 earnings season, with the S&P 500 closing above 5,800 for the first time on Friday. As of Friday, October 11th, the Dow Jones gained 1.21%, the Nasdaq Composite rose 1.13%, and the S&P 500 rallied by 1.11%, while the Barclays Aggregate Bond Index declined by -0.46% in the week.

Source: Zacks

Market News

September CPI. September’s Consumer Price Index data showed inflation coming in slightly above expectations but still lower than August’s figures on a headline basis. Annual inflation for September was reported at 2.4%, while core inflation, which excludes more volatile categories like food and energy, held steady at 3.3%—unchanged from the previous month. On a monthly basis, headline inflation increased by 0.2%, while core inflation rose slightly by 0.3%.

Breaking it down by category, most showed either disinflation or deflation year-over-year. Grocery prices were up only 1.3%, while restaurant costs rose 3.9% from a year ago. Energy prices saw a significant decline, falling -6.8% in the overall category, with the subcategory of gasoline prices down -15.3% from last year.

New vehicle prices dropped -1.3%, and used vehicles were down -5.1% compared to a year ago, as supply chains improve, and demand softens. Shelter inflation, while still elevated, moderated to 4.9% annually, while transportation services continued to be a sticky category, with inflation at 8.5%. This continued improvement in inflation will likely provide the Federal Reserve with room to keep cutting interest rates in the coming meetings.

Source: BLS

September PPI

Similar to last month’s CPI, September’s Producer Price Index continued to show signs of inflationary improvement. Headline producer inflation came in below expectations at 1.8% annually, while core PPI posted at 3.2%. Both figures were down slightly from August. On a monthly basis, headline PPI was flat, while core PPI increased by just 0.1%.

Within the PPI, the price of goods fell by -0.2% in September, while services saw a modest increase of 0.2%, resulting in overall flat producer prices for the month.

Although inflation overall has moderated, core producer inflation, which excludes food, energy, and trade costs, has remained elevated above 3% since April. This could potentially cause consumer inflation to rise in the coming months as businesses often pass down higher prices.

Source: BLS

Consumer Sentiment

October’s Consumer Sentiment Index from the University of Michigan fell by 1.7% as frustration with high prices and uncertainty surrounding the upcoming presidential election weighed on consumers. Despite this slight monthly decline, overall sentiment remains in an upward trend, up 8% compared to a year ago and nearly 40% from the lows of 2022.

Forward-looking inflation expectations have eased considerably, though consumers are still reporting frustrations with higher price levels. Additionally, long-term business condition sentiment reached its highest level in six months, while at the same time, consumers report personal finances worsening slightly in October. With the election less than a month away, consumers also appeared to be withholding judgment about the economy’s longer-term trajectory in this month’s survey.

Source: University of Michigan

Q3 Earnings

Earnings season kicked off last week, with major banks like JP Morgan and Wells Fargo reporting better-than-expected results. As of October 11th, analysts expect the S&P 500 to post 4.1% earnings growth across the index, though this projection has decreased slightly in recent weeks.

Information technology, communication services, health care, and real estate are expected to deliver the strongest earnings growth, although some of these sectors have seen downward revisions in their forecasts over the past two weeks. In contrast, energy, materials, consumer staples, and consumer discretionary sectors are expected to post the weakest earnings growth.

With the majority of the S&P 500 still to report, these estimates and sector performance outlooks may shift, but it’s helpful to have an understanding of analysts’ expectations as earnings season unfolds. If earnings growing across the S&P 500 ends near the expected 4.1%, this would align with the Federal Reserve’s goal of a soft landing, where economic growth moderates but remains stable.

Initial Claims

On Thursday, the Department of Labor reported initial jobless claims reached 258,000 for the week ending October 5th, marking the highest level in over a year and coming in above expectations. A portion of the increase is likely to have been driven by Hurricane Helene and recent furloughs at Boeing, as there were notable spikes in unadjusted claims in North Carolina, Florida, and Washington state. Looking ahead, some economists are wary that these disruptions, along with potential labor impacts from Hurricane Milton, could contribute to a choppy October employment report—set to be released just days before the November 5th presidential election.

Source: Department of Labor

Summary

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. September’s headline CPI data came in slightly above expectations, with inflation at 2.4% and core inflation holding at 3.3%. Producer prices showed signs of easing, and consumer sentiment dipped slightly in October, reflecting concerns over high prices and the upcoming election. Earnings season began positively, with major banks beating expectations, and analysts are forecasting 4.1% earnings growth for the S&P 500. Finally, initial jobless claims hit a yearly high, partly due to recent hurricanes. As a whole, last week’s data demonstrated signs of a soft landing, ultimately leading to the rally in major US equity indexes.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.

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