October 2024
The following facts and statistics describe the financial situation in the United States from January 1st to October 25th:
The S&P 500 is up 1.7 percent for October and 21.77 percent year-to-date.
The S&P 500’s P/E ratio currently stands at 29.65 for the trailing 12 months and has a forward P/E, based on issued guidance, of 21.7 (the 5-year average forward P/E is 19.4, and the 10-year average is 18).
The NASDAQ is up 3 percent for October and 23.36 percent year-to-date.
The Dow Jones Industrial Average is flat for October and up 11.74 percent year-to-date.
RECENT STATISTICS AND ECONOMIC DATA THAT AFFECT INVESTMENT DECISIONS
The following statistics and data are important factors to consider when making investment decisions:
The blended (combines actual results for companies that have reported for Q3 and estimated results for companies that have yet to report) earnings growth rate for the third quarter is 3.6% today. If 3.6% is the actual growth rate for the quarter, it will mark the fifth consecutive quarter of year-over-year earnings growth for the index. However, it will also mark the lowest earnings growth rate reported by the index since Q2 2023 (-4.2%). (John Butters, FactSet).
The Personal Consumption Expenditures (PCE) price index, a measure favored by the Federal Reserve, increased by 2.2 percent in August compared to the same month last year. From July to August, the index rose by 0.1 percent. Prices for goods decreased 0.2 percent and prices for services increased 0.2 percent. Food prices increased 0.1 percent and energy prices decreased 0.8 percent. Excluding food and energy, the PCE price index increased 0.1 percent and 2.7 percent compared to last August.
Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2024, according to the "second" estimate. In the first quarter, real GDP increased by 1.4 percent. The increase in the second quarter primarily reflected rises in consumer spending, private inventory investment, and business investment. Imports, which are subtracted in the GDP calculation, increased. The next report if Wednesday, October 30th.
Private sector employment increased by 143,000 jobs in September, and annual pay was up 4.7 percent year-over-year, according to the August ADP National Employment Report. “Stronger hiring didn't require stronger pay growth last month. Typically, workers who change jobs see faster pay growth. But that premium over job-stayers shrank to 1.9 percent, matching a low we last saw in January.” said Nela Richardson, chief economist at ADP.
On the last business day of August, the number of job openings was 8.04 million, up by 340,000 compared to July and down 1.3 million over the year. The job openings rate, at 4.8 percent, changed little over the month. The number of job openings increased in construction (+138,000) and in state and local government, excluding education (+78,000). Job openings decreased in other services (-93,000).
As of September 2024, the unemployment rate in the United States was 4.1%, down from 4.2% in August.
The labor force participation rate, at 62.7 percent, and the employment-population ratio, at 60 percent, were little changed in August.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis, the same increase as in August and July. Over the last 12 months, the all items index increased 2.4 percent before seasonal adjustment.
The index for all items less food and energy (core CPI) rose 0.3 percent in September, as it did the preceding month. Indexes which increased in September include shelter, motor vehicle insurance, medical care, apparel, and airline fares. The indexes for recreation and communication were among those that decreased over the month. The core CPI rose 3.3 percent over the last 12 months. The energy index decreased 6.8 percent for the 12 months ending September. The food index increased 2.3 percent over the last year.
Advance estimates of U.S. retail and food services sales for September 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $714.4 billion, an increase of 0.4 percent from the previous month, and up 1.7 percent from September 2023. Total sales for the July 2024 through September 2024 period were up 2.3 percent from the same period a year ago.
The yield curve between the 2-year and 10-year Treasury Bonds has turned positive and is currently at +0.14. The last six recessions have occurred after the 2-year and 10-year yield curve reversed and turned positive.
Labor Productivity for the second quarter of 2024 was revised up to 2.5 percent compared to the first quarter of 2024
The Federal Reserve’s balance sheet currently shows $7.029 trillion in assets, down from its peak of $8.965 trillion in April 2022. This represents a reduction of 21.5 percent. The Federal Funds rate is currently set between 4.75 and 5 percent.
QUESTION FOR CONSIDERATION
In what ways do current economic indicators, such as GDP growth, employment data, and productivity improvements, influence the Federal Reserve's approach to interest rate cuts, and how might these factors shape market dynamics and investment opportunities across different sectors in the context of potential political developments?
THE BOTTOM LINE
The resilience of the U.S. economy suggests that the Federal Reserve, which began cutting interest rates in September, can adopt a cautious approach to address potential recession risks. This confidence in achieving a "soft landing"—a slowdown without a recession—has led to a broad rally in the stock market, benefiting a wider array of stocks rather than just a select few large-cap companies. Concurrently, ten-year Treasury yields have increased, reflecting investor optimism about sustained economic growth.
Recent revisions to economic data have brought U.S. GDP and gross domestic income (GDI) growth in line at 3 percent year-over-year, signaling a robust economy despite weaknesses in sectors like manufacturing and housing. Notably, improvements in productivity when combined with downward revisions to payroll growth have contributed to a significant easing in unit labor costs -- which is vital for managing inflation.
As the economy remains strong and inflation trends downward, the anticipated Fed rate cuts should further support growth and allow the stock market rally to broaden. The equal-weighted S&P 500 has outperformed its market-capitalization-weighted counterpart and the "Magnificent 7" tech stocks; this indicates a shift in market dynamics compared to earlier in the year when large-cap stocks dominated.
In the fixed income market, the U.S. economy continues to grow (despite various challenges) with consumer spending being a major driver. Recent employment data, including stronger-than-expected job growth, reinforces this trend. Two-year Treasury yields recently reached 4 percent, and the Fed is expected to continue cutting rates. The pace of rate cutting may be slower than initially anticipated; the final rate will most likely be between 3.0 percent and 3.25 percent.
On the global front, the U.S. election and significant elections in more than 80 countries this year appear to have only a limited effect on markets. Many newly-elected leaders face economic realities that restrict their ability to implement radical policy changes; this often results in more pragmatic approaches.
In summary, while political developments are drawing attention, underlying economic fundamentals are proving to be more influential in shaping policy and market trends. Investors should focus on these economic indicators and global developments to navigate potential opportunities in this evolving landscape. And that’s The Long and Short of It!