Market Commentary - September 2024

September 2024

Despite rough start, stocks rally for August gains on Fed rate cut expectations

Following a record setting July, the global financial markets got off to a rough start in August. However, global stocks rallied strongly as Fed rate cut expectations rose for September, led by the S&P 500 and Dow Jones Industrials.

On the last day of July, the Bank of Japan raised policy interest rates 0.25% from 0%, marking the first time in 17 years, the BOJ’s policy rate is above zero. It was the BOJ’s second straight rate hike to help shore up the Yen against the US dollar and curb rising inflation. The move sent shock waves across the global markets on the first trading day of August, as the Japanese carry trade began to unwind. Japanese stocks were hit the hardest losing 12%. For more than a decade, investors could borrow at 0% interest in Japan and invest elsewhere for higher returns.

Additionally, a weaker-than-expected July manufacturing report, cooling jobs growth, and the unemployment rate ticking up to 4.3% amounted to a growth scare, and all contributed to the early-August turmoil. The core US stock indexes were down 5% to 10% in the first week.

However, encouraging inflation reports for July raised Fed rate cut expectations, along with Fed comments, helped support the economic soft-landing scenario. Meanwhile, Q2 US Gross Domestic Product (GDP) was revised up to 3% annualized.

The Dow rose 1.8% and closed August at an all-time high of 41,563, while the S&P 500 and tech-heavy Nasdaq gained 2.3% and 0.7% respectively. Small- and mid-cap stocks rallied from their pullback as well as but posted modest losses for August.

Overseas, developed market stocks recovered from the early downturn as well, and the benchmark MSCI EAFE index closed August at an all-time high after posting a 3% gain. The MSCI World All-Cap index also closed August at an all-time high, and Emerging Markets gained 1.4%.

While the Fed didn’t have an FOMC meeting in August, Chair Powell’s August 23 speech at the annual Jackson Hole Symposium sent both stocks and bonds sharply higher noting it was time for Fed policy to adjust. The markets priced in a 100% probability of a 0.25% Fed rate cut at the September 17-18 meeting. The Bloomberg Aggregate Bond Index gained 1.5% in August and finished +3.5% for the year; the 10-year Treasury Note yield fell 0.18% to close at 3.91%.

September Update

It felt like August déjà vu as September got off to a similar rough start, with global stocks beginning the month on the downside following another economic growth scare, again on cooling jobs reports, but the unemployment rate dipped to 4.2%

However, back-to-back good inflation reports for August CPI and PPI kept the Fed’s September rate cut expectations firmly in place and interest rates continued to fall. Stocks rallied strongly on the news and edged closer to all-time highs for the Dow, S&P 500, and Nasdaq ending September 13, but remained down slightly for the month of September ahead of the Fed FOMC meeting September 17-18.

The market is pricing in 100% probability for a Fed rate cut but now leaning 60% to 40% for 0.50% versus 0.25% due to a shift in sentiment last week. Just a month ago, there was just a 25% chance for 0.50%. The Fed will join other major Central Banks that have already cut interest rates in 2024, including the ECB-European Central Bank, Bank of England, and Bank of Canada.

Volatility remains in the near-term forecast, as market volatility tends to increase closer to presidential elections. Investor patience and discipline are warranted as we remain cautiously optimistic beyond the election.

We continue to encourage investors:

• Remain well-diversified
• Maintain discipline and patience
• Focus on the long-term
• Review your Risk Tolerance

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.

~Your Nelson Securities Team    

*Past Performance is No Guarantee for Future Results