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
Economic data for the week included the FOMC cutting interest rates more than many expected, beginning a new policy phase of easing. Retail sales and industrial production rose, exceeding expectations. Housing starts increased, recovering from a hurricane the prior month, while existing home sales declined. The index of leading economic indicators continued its negative path, albeit to a lesser degree than the month before.
Equities gained globally in response to the Fed’s rate cut and turn to easing policy. Bonds were mixed, however, with falling short yields offset by longer yields, although emerging market bonds fared well. Commodities gained as crude oil and natural gas inventories fell.
U.S. stock market response to the Fed’s rate cut was mixed on Wed., although Thurs. featured a good deal more positivity, with gains of nearly 2%. By sector, energy, financials, and communications saw the biggest gains, close to 4%, while defensive consumer staples and health care lagged with declines. Real estate also fell back a percent as longer-term interest rates rose and anticipated rate cuts came to fruition, leaving fewer positive expectations.
At the September meeting, the U.S. Federal Reserve Open Market Committee decided to reduce the Fed funds rate by -0.50% to a new range of 4.75-5.00%. There was one voter dissent, where a member opted for only a quarter-percent cut.
The formal statement was updated to reflect the new easing bias, noting that inflation has simply “made further progress…but remains somewhat elevated.” Also noted was that the committee’s labor and inflation goals “are roughly in balance.” Later in the statement, labor was again mentioned in a reminder of the Fed’s dual mandate in “supporting maximum employment” in addition to its inflation objective. The new quarterly Summary of Economic Projections (SEP) put the Fed funds rate expectation at 4.4% for year-end 2024 (down from 5.1% in June), 3.4% for 2025, 2.9% for 2026 and 2027, while the anticipated long-term rate ticked up a tenth to 2.9%.
There hasn’t been this much mystery shrouding a policy change in some time, and surprise announcements have not been common in recent years. Before the meeting, CME Fed funds futures markets evolved toward the chances of a -0.50% cut at as high as 60%, and a -0.25% move at around 40%, after wavering between the two for much of the past month (wisdom of futures markets is correct again). Chances remain high for cuts in November and December, with odds pointing to a year-end rate of around 4.25%. The furthest-out estimate in Dec. 2025 shows the highest probabilities for Fed funds at around 3.00%.
Economic data for the week included producer price inflation continuing to decelerate, as did consumer price inflation to some degree, although rising shelter costs remain a persistent influence. Consumer sentiment came in a bit better than expected, although expectations for future inflation were mixed.
Stocks saw gains globally as markets digested central bank policy easing and the close U.S. Presidential election. Bonds fared positively across the board as yields fell. Commodities rose across the board, due to the strength in metals.
U.S. stocks saw gains last week, to reverse the negativity of the prior week. They also shook off mixed results mid-week that included the relief of decelerating CPI but perhaps not enough to fully satisfy the Fed, in addition to perhaps the strong debate performance by Vice President Harris, which Wall Street viewed as raising the odds of higher taxes and regulation, and a less corporate-friendly environment generally. The magnitude of the upcoming Federal Reserve rate cut (as in -0.25% or -0.50%) remained an open question by week’s end.
On the Labor Day-shortened week, economic data included ISM manufacturing and services gaining some ground, a continued reduction in job openings, and an employment situation report coming in largely as expected (and an improvement on the prior month’s disappointment).
Equities lost ground globally for the week with concerns over the broader economy and labor markets in the U.S. Though, bonds fared well as yields fell sharply. Commodities fell back led by weaker oil prices due to future demand worries.
U.S. stocks suffered the worst weekly declines in over a year and a half, but representing the third meaningful drawdown this year. By sector, only consumer staples saw a small gain, while all others ended in the negative, led by technology (-7%), energy (-6%), and materials. The sizable technology drop was fueled by NVIDIA down -14%, following rumors about it being subject to a Justice Department antitrust probe, resulting in the largest dollar market cap loss on record. (Moderate changes in trillion-dollar market cap sizes have tended to be record setting.) Real estate also gained slightly, along with lower yields.
Economic data for the week included U.S. GDP growth for Q2 revised upward, along with higher durable goods orders and consumer confidence, in addition to gains in personal income and spending. Home prices remain strong on a trailing annual basis, although the pace has decelerated.
Equities were mixed, with value outperforming growth sectors and foreign stocks. Bonds generally fell back as yields ticked up a bit across the curve. Commodities were mixed, with energy and metals prices down for the week on demand concerns.
U.S. stocks were mixed on the lower volume last week of summer, with ‘value’ seeing gains of over a percent, while ‘growth’ fell back. Sector results reflected this, with financials gaining 3% on the week, followed by industrials and materials; on the other hand, technology stocks fell back by over -1% (largely the impact of NVIDIA), along with lesser declines in consumer discretionary (Tesla and Target). Real estate saw minor gains, despite higher yields during the week.
Economic data for the week included stronger new and existing home sales reports, along with mixed PMI manufacturing and services sentiment, and a weaker month from the index of leading economic indicators.
Equities gained globally last week, along with further hints of easing central bank policy. Bonds similarly gained as yields fell. Commodities were mixed, with stronger metals and weaker crude oil prices.
U.S. stocks ended positively for the week, despite low summer trading volumes, with decent economic results and the dovish tone of the FOMC July minutes. Gains culminated on Fri. by the further dovish tone of Fed Chair Powell’s Jackson Hole speech. Nearly every sector saw gains last week, led by materials, consumer discretionary (largely helped by Target and TJX), and industrials, while energy experienced a minor decline. Real estate also rose nearly 4% on the sentiment surrounding lower rates, which has been one of the primary drivers of that sector in the near-term. Small cap reacted especially strongly to the hints of upcoming rate cuts, as would be expected. Focus remains on the consumer, with added sensitivity to signs of potential weakness in corporate earnings commentary, as well as the mix of product type and purchaser demographic/income level.
LSA Connect 