Market Update – October 28th, 2024

Stocks got a slower, predominantly negative week as markets prepare for a busy upcoming stretch that includes the U.S. presidential election, a Federal Reserve meeting, key inflation data, and the jobs report. As of Friday, October 25, the Nasdaq was one of the few major indexes to post gains, up 0.16%, largely driven by Tesla’s 20% rally. In contrast, the S&P 500 declined by -0.97%, and the Dow Jones Industrial Average fell by -2.68%. Bonds also saw a decline, with the Barclays Aggregate Bond Index down -0.93% for the week as yields rose.

Market News

Leading Indicators. Reported last week, the Leading Economic Index (LEI), continued its decline in September, falling 0.5% for the month and 2.6% over the past six months. This drop was primarily driven by weak factory new orders, reflecting the global slowdown in manufacturing.

Other factors contributing to the LEI’s decline include a persistently inverted yield curve (the difference between the 10-year U.S. Treasury yield and the Federal Funds Rate), a drop in building permits, and consumer uncertainty about future business conditions.

While the LEI’s downward trend currently signals that the US is currently in or will soon face a recession, the unique complexities of the current economy make it uncertain how accurately the LEI reflects the near-term outlook.

Existing Home Sales. September’s existing home sale volumes fell by -1% compared to August and were down -3.5% from one year ago, as high interest rates and elevated home prices continue to weigh on the residential real estate market. Inventory increased to 4.3 months’ worth, up from 3.4 months a year ago, indicating a slight rise in available homes.

The median sales price for an existing home also rose 3% annually, reaching $404,500. As the Federal Reserve’s recent rate cuts and expected further reductions in the policy rate begin to influence the market, it will be interesting to watch how these figures evolve in the residential real estate sector.

Source: National Association of Realtors

New Home Sales. New home sales volumes rose by 4.1% in September and were up 6.3% year-over-year, supported by builders offering various price incentives to attract increasingly budget-conscious buyers. The median sales price for new homes in September was $426,300, remaining nearly unchanged from last year, while the average price declined by -2.7% annually to $501,000. At the end of September, there was approximately a 7.6-month supply at the current sales rate, as the new build market faces softness.

CFNAI. The Chicago Fed National Activity Index (CFNAI), which assesses economic activity and inflation through metrics such as production, employment, consumption, housing, and inventory, dropped to a bearish -0.28 in September, down from a neutral -0.01 in August.

Production-related indicators had the largest impact on the CFNAI, contributing -0.21, down from +0.04 in August. Sales, orders, and inventories remained at -0.03, while employment indicators fell to -0.03. The personal consumption and housing category improved slightly to -0.01 from -0.03. Overall, the CFNAI, as well as other coincident and leading indicators signal caution ahead for the US economy.

Source: Federal Reserve Bank of Chicago

Tesla Earnings. Tesla’s stock surged last week after the company reported stronger-than-expected third-quarter earnings and provided optimistic forward guidance. The earnings per share for Q3 posted at 72 cents, surpassing the anticipated 58 cents by 24.1%.

CEO Elon Musk indicated during the earnings call that he expects vehicle growth to reach 20% to 30% next year, driven by lower-cost vehicles and advancements in autonomy. This projection exceeds analysts’ previous estimates of around 15% growth in vehicle sales. Following the news, TSLA shares rose more than 20%.

Source: Google Finance

Weeks Ahead. The next two weeks will be paramount for shaping market direction as we approach year-end. In the upcoming week, we will receive key indicators, including consumer confidence, the initial estimate of third-quarter GDP, PCE inflation, the October employment report, and the ISM Manufacturing Index. The following week will also be significant, featuring the ISM Services Index, the Presidential Election, and the November Federal Reserve meeting. We look forward to monitoring these important data points and events over the next two weeks.

Summary

Last week, markets saw negative performance as they geared up for a busy schedule ahead, including the U.S. presidential election, a Federal Reserve meeting, and important economic data. Economic indicators, including the Leading Economic Index and Chicago Fed National Activity Index, showed a decline, highlighting the ongoing recession concerns. New and existing home sales continue to reflect slowing growth, as higher interest rates impact real estate markets with a lag. Finally, TSLA saw gains as the EV maker posted better than expected earnings and forward guidance.

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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