Economic data for the week included declines in retail sales and industrial production, while producer and consumer inflation remained sticky—especially on the shelter side.
Equities lost ground across the board last week, as the post-election rally faded a bit. Bonds also fared poorly as interest rates ticked higher. Commodities also lost ground with a stronger dollar and demand concerns holding down sentiment.
U.S. stocks pulled back last week, in a reversal of pre- and early post-election gains. By sector, financials and energy eked out gains of a percent each for the week to lead, each with hopes for benefits from deregulation in the new administration, while all other sectors ended in the negative, led by an over -5% drop in health care, in addition to -3% drops in technology and materials. Health care sentiment was pulled downward by the announcement of Robert Kennedy, Jr. as nominee to lead the Department of Health and Human Services (responsible for nearly a quarter of the Federal budget within Medicare, Medicaid, and others), who’s had an extensive history of being critical of big pharma and vaccines, and has held some views seen as non-traditional in the medical community.
Economic news for the week included the U.S. Federal Reserve cutting the Fed funds rate by another quarter-point. In terms of data, ISM services ticked higher, remaining in strong expansion, and productivity saw gains in Q3, although labor costs rose as well.
U.S. stocks gained ground for the week following the conclusion of the Presidential election, while foreign stocks saw mixed results. Bonds fared positively as yields pulled back from recent highs. Commodities were mixed, with gains in energy offset by a decline in metals.
U.S. stocks were little changed in the early part of the week, before the results of Tuesday’s general election. The strong Republican showing resulted in a strong rally starting Wednesday, with votes still being counted to determine the composition of the House and possible red sweep. The general hope for markets with this political arrangement is lower corporate taxes, a light-touch regulatory environment, and stronger upcoming earnings growth. The ends of election seasons have also tended to prompt a ‘relief rally’ of sorts historically. The FOMC rate cut was icing on the cake, although expectations for next year have become less dovish. Small caps fared especially well, as would be expected in such an environment.
After a long campaign season, with key policy points discussed ad nauseum, the following serves as a status update of several more economically-oriented issues. Considering that major policy changes tend to require Congressional approval, the outcomes of the Senate and House races are just as important as the Presidential, if not more so. One caveat is that final tallies are still in progress for a handful of close races, but as it stands currently, there is the potential for a Republican sweep for the executive branch, Senate, and House—which the narrative below implies, for simplicity’s sake. (Topics are listed alphabetically, not in order of importance.) This is important, in that a sweep paves the way for purer and more expedient policy transmission, while a split House and Senate creates far more hurdles to fast/easy policy, requiring compromise and diluted policy, or even disagreement to the point of minimal new legislation being produced.
Economic data for the week included U.S. GDP growth showing another strong quarter, as did personal income and spending. Manufacturing data continued to contract, as has been the trend over the past several years. The monthly employment situation report was far weaker than prior months, below lower expectations, due to the impacts of hurricanes and a major labor strike.
Equities fell back last week with mixed company earnings call commentary and higher interest rates. Bonds fell back as yields continued to move higher, with concerns over fiscal spending. Commodities fell back as geopolitical concerns related to the Middle East faded a bit.
U.S. stocks fell back as a whole last week, with notable weakness in large cap growth offset by lesser declines in value and minimal change in small cap stocks. By sector, communications gained over a percent (mostly Alphabet/Google) to lead, while technology (Apple, Microsoft, and NVIDIA), utilities, and energy all lost several percent for the week. Real estate also fell by -3% along with higher long-term interest rates. On Thursday, markets took a downward turn after quarterly reports from Microsoft and Meta especially. Despite decent Q3 numbers, this appeared to be due to continued concern over high levels of AI infrastructure spending, and an uncertain timeline for this capex to translate into sales. Obviously, the higher the price ratios rise for such companies, the greater the market sensitivity to potential disappointment. Sentiment on Friday improved dramatically as a weak jobs report (albeit weather- and strike-driven) provided more hope again for keeping Fed rate cuts on track. With such a close national election race, removing the uncertainty will be a key theme of the coming week.
Economic data for the week included a decline in overall durable goods, mixed results in housing sales, as well as higher continuing jobless claims, due to a variety of weather and labor issues.
Equities declined globally, with higher interest rates and less certainty about central bank rate easing looking forward. Bonds fell back along with rising yields at the longer end of the curve. Commodities gained, largely due to energy, despite a stronger dollar.
U.S. stocks lost ground for the first time in six weeks, as higher interest rates associated with an assumed more drawn-out Fed rate cut cycle and perhaps higher future deficits post-election weighed on sentiment. By sector, consumer discretionary experienced a percent gain (led by a 20%+ return for Tesla, upon better than expected earnings and vehicle sales projections) and a small gain for technology, while negativity was most pronounced in materials, industrials, and health care. Large cap fared better than small cap. Real estate fell about -2% upon the rise in yields.
Economic data for the week was mixed, with positive reports for retail sales, while industrial production and housing starts declined. Jobless claims were decent, considering the negative weather- and labor-related impacts.
Equities were mixed globally, with gains in the U.S. on net, and declines abroad, tied with a pullback in China’s recent rally. Bonds were flattish with little change in the yield curve. Commodities were down for the most part, with lower perceived geopolitical risks pulling down oil prices.
U.S. stocks saw continued gains last week, led by continued reinvigorated strength in small cap stocks over large. By sector, utilities, financials, and materials led the way with gains of roughly 2% or more. Energy was the laggard, falling by nearly -3% upon continued weakness in oil prices. Real estate also gained several percent.
Economic data for the week included consumer inflation coming in better on the headline side, but remaining sticky on the core side, while producer prices continued to show moderation. Jobless claims rose following consecutive hurricanes impacting the Southeastern U.S.
Equities were mixed globally last week, with gains in the developed world and declines in emerging markets, due to varying economic results and central bank policy expectations. Bonds pulled back as yields moved higher along with sticky inflation. Commodities were mixed, with oil prices ticking a bit higher but industrial metals down.
U.S. stocks reached new record highs again last week. Sector results were mixed, with technology and industrials leading with gains of over 2% for the week, followed by financials, while utilities pulled back by over -2%. Real estate saw a small decline, as interest rates ticked upward a bit. In the closely-monitored tech and communications segment, strength in NVIDIA offset a decline in Alphabet/Google, as it appears the Department of Justice is considering a legal push for a breakup of the company. Tesla also fell back by double digits as investors appeared less impressed with the lack of detail concerning their new ‘robotaxi’ products.
As the Federal Reserve introduces the first round of rate cuts, markets are attempting to come to grips with a new investment paradigm, which is showing signs of cooling. Despite the recalibration of our portfolio, we’re not abandoning ship. Looking beyond the immediate horizon, our medium-term outlook remains cautiously optimistic, with a view that recession odds remain low in the near term.
The current market conditions continue to show a preference for stocks over bonds. By extending some duration to the models, the committee is looking to lean into an improved diversification role of core bonds, setting the stage to potentially capitalize on the opportunities that frequently emerge in the wake of a rate cutting cycle. Our research also reveals the autumn period from mid-September through early November in presidential election years has tended to be more volatile than usual, with increased vulnerability to sharp downside moves. The elevated uncertainty surrounding the upcoming election adds additional complexity that is difficult to handicap. Given the sharp divide in the parties’ expected policy, and the expectations of a close race, many real economy actors are delaying major capital allocations and business-defining bets to after election night. In this state of uncertainty any lack of liquidity has the potential to trigger significant market fluctuations and is compounded by the chance of delays or prolonged uncertainty about the outcome. A relatively tranquil melt up in mega cap stocks the first 6 months of the year was disrupted by history-making single-day selloffs, rotations, and V-shaped snapbacks, telltale signs of a market more susceptible to headline-induced downdrafts.
The LSA Investment Policy Committee; will be implementing model updates to the mutual fund, and ETF models. These changes will be released early October with a planned review of variable annuity models to follow. Below you will find a breakdown of the upcoming changes:
Posted Tuesday, October 1st– ETF, ETF Tactical, PC IQ, Private Client Blended, Private Client Traditional, Private Client, Private Client Tax Efficient, Bear Market Entry, Cautious Bear Plus, and Private Client L100k – targeted model update – Tuesday, October 8th.
*The mutual fund model revisions impact the NTF models as well.
*As a reminder, the Revision Explanation notes are posted in the “Portfolio News” section on each of the platform home pages.
Posted inPortfolio Updates|Comments Off on Model Update Reminder – October 2024
Fall is such a wonderful time of year, the mornings crisp and the turning leaves starting to brighten woodland and back yard alike. Happy Fall!
Over the past couple of years, the global economy’s been a lot like that Goldilocks story we all know, where the trick is to find the balance that’s “just right.” When things got going after the pandemic, the economy started heating up, kind of like the bowl of porridge that’s too hot. Folks were spending like crazy, and with supply chains struggling to keep up, prices shot up, giving us the inflation we’ve all been feeling. To cool things down, the Fed began to raise interest rates a couple years ago, trying to keep things from boiling over. They knew that if they pushed too hard and slowed the economy too much, we could end up with a cold bowl of porridge—things like higher unemployment and slower growth.
Last week the Fed began to cut interest rates, and they made their first trim by a substantial half a percent. Markets had been anticipating this first cut for some time and folks have decided that it is likely this Fed rate cut will be the first of many, with the approximate 5% rate we had been used to last month falling substantially over the balance of this year and next.
Economic data for the week included ISM manufacturing data coming in unchanged, and still contractionary, while ISM services improved further into expansion. Friday’s employment situation report came in far better than expected, in higher nonfarm payrolls and a drop in the unemployment rate.
Equities were mixed globally with gains in the U.S. and China, while other developed and emerging countries saw declines. Bonds fell back generally with higher interest rates. Commodities rose with a sharp gain in crude oil along with Middle East concerns.
U.S. stocks were mixed early in the week, with decent economic data coupled with Fed Chair Powell again reiterating in a high-profile speech that “more cuts” would be coming, but also downplaying the speed, as the FOMC is “not a committee that feels like it’s in a hurry to cut rates quickly.” This appears to have disappointed markets a bit. The East and Gulf Coast port strike also raised the likelihood of a negative impact on near-term GDP by at least a few tenths of a percent if it went on for a few weeks (although a temporary agreement was reached by Thurs.). By week’s end, the stronger-than-expected nonfarm payrolls report again pointed to a possible slower Fed rate cutting path, which was felt in interest rates more than it was in equities (with the offsetting story of still-strong economic growth a likely positive).
As the Federal Reserve introduces the first round of rate cuts, markets are attempting to come to grips with a new investment paradigm, which is showing signs of cooling. Despite the recalibration of our portfolio, we’re not abandoning ship. Looking beyond the immediate horizon, our medium-term outlook remains cautiously optimistic, with a view that recession odds remain low in the near term.
The current market conditions continue to show a preference for stocks over bonds. By extending some duration to the models, the committee is looking to lean into an improved diversification role of core bonds, setting the stage to potentially capitalize on the opportunities that frequently emerge in the wake of a rate cutting cycle. Our research also reveals the autumn period from mid-September through early November in presidential election years has tended to be more volatile than usual, with increased vulnerability to sharp downside moves. The elevated uncertainty surrounding the upcoming election adds additional complexity that is difficult to handicap. Given the sharp divide in the parties’ expected policy, and the expectations of a close race, many real economy actors are delaying major capital allocations and business-defining bets to after election night. In this state of uncertainty any lack of liquidity has the potential to trigger significant market fluctuations and is compounded by the chance of delays or prolonged uncertainty about the outcome. A relatively tranquil melt up in mega cap stocks the first 6 months of the year was disrupted by history-making single-day selloffs, rotations, and V-shaped snapbacks, telltale signs of a market more susceptible to headline-induced downdrafts.
The LSA Investment Policy Committee; will be implementing model updates to the mutual fund, and ETF models. These changes will be released early October with a planned review of variable annuity models to follow. Below you will find a breakdown of the upcoming changes:
Posted Tuesday, October 1st– ETF, ETF Tactical, PC IQ, Private Client Blended, Private Client Traditional, Private Client, Private Client Tax Efficient, Bear Market Entry, Cautious Bear Plus, and Private Client L100k – targeted model update – Tuesday, October 8th.
Economic data for the week included the final edition of Q2 GDP growth coming in unrevised at a continued strong pace. PCE inflation was slightly improved, while durable goods orders were unchanged. House prices continued to see gains, while new home sales fell back for the month.
Equities were generally positive globally, led by foreign markets, and particularly Chinese stocks as government stimulus measures were announced. Bonds were flattish in the U.S., but positive abroad due to a weaker U.S. dollar. Commodities were mixed, with gains in metals especially from the Chinese stimulus, while energy prices fell with higher expected supplies.
U.S. stocks gained last week on the heels of benign U.S. economic data and announced stimulus measures in China. Results by sector were mixed, with the strongest gains in materials (with items such as copper and certain chemicals seen as a direct beneficiary of greater Chinese activity), consumer discretionary, and communications, while health care, energy, and financials experienced small declines. Real estate was also down slightly, with interest rates little changed.
Foreign stocks fared especially well last week, with gains in Europe and the U.K. outpacing the U.S., as both services and manufacturing activity fell and raised hopes for rate cuts sooner. (In fact, central banks in Sweden and Switzerland did cut another quarter-percent last week.) Japan lagged with minor declines. Emerging markets were the key story, with gains of over 15% in China leading all other nations by a large degree, with next highest in Taiwan and South Korea, which tend to be related. The Chinese central bank announced a series of policy easing measures last week, including a -0.20% cut in primary 7-day policy rates, as well as a -0.50% cut in bank reserve requirements that loosen up liquidity for lending, and a -0.50% cut in outstanding mortgage rates. It also included more property reforms, lower down payments, and liquidity facilities to help the stock market, with support for refinancings and stock buybacks. Some measures had been expected, other than the timing of when they might happen, as officials move to stimulate towards the 5% GDP growth target. This initial phase of support was not as dramatic as some may have hoped, but was thought to perhaps open the door for further moves (the central bank is ‘studying’ other possible stimulus measures on both the monetary and fiscal side) and perhaps put a ‘floor’ of sorts on what was internally tolerable for the economy and financial markets. It also did not directly address one of the key underlying issues in the Chinese economy, domestic consumer demand, which remains lackluster and is a key reason for gradually declining long-term growth forecasts when coupled with slowing demographic influences.
Bonds experienced an extremely flattish week, in keeping with minimal change in U.S. Treasury yields across the curve. High yield earned a few basis points more than Treasuries for a slight lead, while foreign bonds fared more positively, with help from a weaker U.S. dollar.
Commodities were mixed for the week, with gains in industrial metals and agriculture were offset by declines in energy. Metals gained specifically due to expected pickup in demand from China, with gains in copper and aluminum. Crude oil declined by -4% last week to $68/barrel, following reports that Saudi Arabia is interested in taking back market share by abandoning its $100 oil price target. Natural gas prices continued to spike, with Hurricane Helene bearing down on the Gulf Coast states.
Period ending 9/27/2024
1 Week %
YTD %
DJIA
0.59
13.89
S&P 500
0.64
21.55
NASDAQ
0.96
21.37
Russell 2000
-0.13
10.85
MSCI-EAFE
3.75
14.73
MSCI-EM
6.21
17.23
Bloomberg U.S. Aggregate
-0.01
4.69
U.S. Treasury Yields
3 Mo.
2 Yr.
5 Yr.
10 Yr.
30 Yr.
12/31/2023
5.40
4.23
3.84
3.88
4.03
9/20/2024
4.75
3.55
3.48
3.73
4.07
9/27/2024
4.68
3.55
3.50
3.75
4.10
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
Posted inEconomic News|Comments Off on Weekly Economic Update – 9-30-2024
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