Market Update – Sept 30th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, September 30th, 2024

Financial Markets

During the last full week of September, stocks moved higher, as PCE inflation data on Friday indicated continued disinflation. As of close on Friday, September 27th, the Nasdaq Composite gained 0.81%, the Dow Jones Industrial Average rose 0.45%, and the S&P 500 increased 0.34%. In contrast, bonds ended the week in negative territory, with the Barclays Aggregate Bond Index down -0.19%.

Market News

PCE Inflation. The Personal Consumption Expenditures Index, the Federal Reserve’s preferred measure of inflation, came in lower than expected for August, with annual headline inflation at 2.2% and core inflation at 2.7%. On a monthly basis, prices increased just 0.1% for both headline and core measures, suggesting minimal inflationary pressure in August.

This month’s data continued to show a divergence between goods and services, with goods prices falling by -0.9% year-over-year while services rose 3.7%, highlighting that services remain the primary driver of inflation. This softer-than-expected inflation print is a positive development for the Fed, supporting the case for more aggressive rate cuts going forward.

Personal Income, Spending, & Saving. Alongside the PCE inflation report, the Bureau of Economic Analysis also released August’s monthly figures for personal income, spending, and savings. Both income and spending grew at a similar pace, each increasing by 0.2% for the month.

The personal savings rate for August stood at 4.8%, representing a slight decline from July’s level. However, revisions to the previous six months’ data show significant upward adjustments, as higher interest and dividend income provided a boost to savings. These adjustments reiterate the stability of the US economy, with higher interest rates providing some consumers the opportunity to grow their savings.

Source: Federal Reserve

Union Strikes. The largest longshoremen’s union in North America, representing 85,000 workers, is planning to strike after midnight on Monday, September 30th, if a new contract is not reached with management. The affected ports, which span the East Coast and include some of the world’s busiest—such as New York/New Jersey, Baltimore, Norfolk, Savannah, Miami, and New Orleans—are critical hubs for global trade.

If the strike occurs, it could disrupt the operations of hundreds of companies that rely on these ports, forcing them to seek alternative supply chain solutions at non-striking locations. This would likely result in congestion and delays at unaffected ports. Some of the top companies set to be impacted include Walmart, Ikea, Samsung, Bob’s Discount Furniture, and LG.

A prolonged strike has the ability to create ripple effects throughout the economy, driving up shipping costs and potentially contributing to abruptly higher inflation ahead of the holiday season. We will continue to monitor the situation closely this week, as a strike at these key East Coast ports could have significant implications for the broader economy.

New Home Sales. August’s new home sales data showed 716,000 new homes were sold in the month, a 9.8% increase compared to August 2023, driven by improving affordability as mortgage rates decline. The median sales price was $420,600, down -4.6% from a year ago, another factor becoming more favorable for affordability. With the Fed’s recent rate cut and the likelihood of more rate cuts on the horizon, sales volumes may continue to improve in the coming months.

Chicago Fed National Activity Index. The Chicago Fed National Activity Index (CFNAI), a broad-based measure of economic activity based on production, employment, consumption, housing, and inventory metrics, posted a positive reading for August last week. The CFNAI increased to +0.12, up from -0.42 in July, indicating a shift from weak to slightly stronger economic activity. Readings above zero signal above-average growth, while those below zero suggest below-average growth.

Source: Federal Reserve Bank of Chicago
 
August’s gain was primarily driven by production, with other categories showing neutral or negative changes in the month. This shift from bearish to bullish in the CFNAI changes our recession indicator dashboard to four bullish factors, two bearish, and two neutral, signaling an overall cautiously optimistic outlook for the economy.

Summary

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. New home sales also rose 9.8% year-over-year, driven by improving affordability and expectations of further rate cuts. On the labor front, a potential East Coast port strike looms, threatening to disrupt supply chains for major companies if a deal is not reached by September 30th at midnight. Finally, the Chicago Fed National Activity Index shifted to a bullish factor last week, indicating a modest improvement in our outlook for the US economy.

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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