October 17, 2024

The Broadcast | October 2024

A bull, banker and AI robot walk into a bar - Picture Inspired by Me via DALL·E 3 & ChatGPT

It’s been a wild few weeks in the financial markets, with plenty of data to keep us on the edge of our proverbial barstools. Between inflation reports (steady), labor market updates (solid), and the ever-persistent question of where interest rates are headed (lower...maybe?) there have been more twists and turns than the 49ers early season performance (or lack thereof.) So, grab your coffee (or maybe something stronger), and let’s break down what’s been happening in the financial world over the past month.

Stock Market: A Bull, Banker and Robot walk into a bar...

The bartender looks at them and asks, "What is this? A stock market metaphor?"

Please excuse the terrible joke, but I thought it poignant as the stock market continues to soar to record highs - led by a huge breakout by the Financials sector (XLF.)

2024 YTD Index + Financials Returns

Regular readers of The Broadcast, know I've beaten the Terminator/AI analogies into the ground - so it's actually a little refreshing to have a new sector to make corny jokes (and cartoons created by AI, oh the irony!) about. Thank you for the new material, Financials!

Despite the Fed cutting interest rates by one-half percent, bank earnings have been the story of the 3rd quarter thus far. It is widely felt that bank earnings and the supporting commentary around strong consumer spending help further confirm what the stock market seems to have been telling us for some time - we have achieved a soft landing.

Not to be outdone, the tech heavy Nasdaq and large cap S&P 500 (despite some recent volatility) continue to be solid for the year as well. AI chip darling Nvidia, Meta (fresh off their recent reveal of augmented reality glasses) and Apple (jumping headlong into AI via Apple Intelligence) are all near all-time highs as the AI story continues to be front and center.

You'll also notice the recent uptrend (and quick partial reversal) in Emerging Markets (VWO.) This is largely due to a substantial economic stimulus program undertaken by the Chinese government to turn around their sluggish economy.

Corporate Earnings: The Real MVP

Beyond the banks, analysts expect the S&P 500 to post earnings growth of 7% for the 3rd quarter 2024.

Continued strength and growth in corporate earnings is perhaps the key driver to stock prices, so I'm encouraged by the continually improving earnings trend in 2024.

Inflation: Stable

Now, onto everyone’s favorite topic—inflation. The latest Consumer Price Index (CPI) report (which covers September) was 0.2% (2.4% annualized) which was lower than August's number of 0.21% (2.5% annualized.)

While this is still above the Fed's target rate of 2%, we've at the very least stabilized.

Interest Rates: Don't Fight the Fed?

What does this mean for interest rates? Well, the Fed finally lowered rates by one half percent in September. This helped give the markets a bit of breathing room. However, with their eyes zeroed in on inflation there’s no guarantee that the Fed will cut rates further in the near future (despite what investors may hope.)

While lower rates are typically associated with stock market rallies, the market has soared to record highs despite higher than expected interest rates over the past 2 years.

It is pretty obvious that the Fed is still worried about the stickiness of inflation, so we remain their captive audience as it pertains to rates for the immediate future.

The Labor Market: Still Strong, But Softening

Despite all the talk of recession, the labor market continues to hold steady, though it’s showing signs of slowing. The unemployment rate inched up to 3.9% in September, and job growth has tapered off slightly​

For the Fed, this is good news in some ways—fewer jobs and slower wage growth help reduce inflationary pressures.

But here’s the tricky part: if job growth slows too much, consumer spending could take a hit, and that’s where things could get dicey. For now, the labor market is walking a fine line, but it’s definitely something to watch as we move into the final stretch of 2024.

Looking Ahead: What’s Next?

So, what’s the takeaway from all of this? Well, it’s a mixed bag. The financial sector has been a bright spot, but inflation is still hanging around and interest rates remain high. As we look toward the end of October, the big question is whether the Fed will take steps to ease conditions as they originally intended or not.

Earnings season is also in full swing, and corporate results from other sectors will help paint a clearer picture of where the economy is headed. The labor market, inflation, and consumer spending will continue to be key drivers as we close out 2024.

Did I miss anything? Oh, yeah...there is a tiny little election next month too. In addition to my usual favorite topics, I'm sure I'll also dive more into that hot topic next month!

Until next time, stay tuned, and as always, don’t hesitate to reach out if you have any questions!

Steve