Written by Steve Andrews
US Stocks & Sector Trends
Although the US stocks continue to flirt with record highs, market volatility persists. The first week of September brought the worst week for US stocks in 18 months after another tepid August employment report.
The jobs data was not all bad. The Household Survey of smaller businesses and start-ups, from which the Unemployment Rate is calculated, enjoyed its biggest gain in five months. Meanwhile, average hourly earnings rose 0.4%, lifting them 3.8% above year-ago levels.
Oil prices have eased to their lowest level since June 2023 as concerns over the Middle East eased somewhat, while concerns over global growth increased. This caused OPEC to delay a planned increase in output until December. Here at home, US oil production in August hit a record 13.4 million barrels per day.
Consumer Sentiment & Interest Rates
We’ve said for some time that if anyone deserves to be Time Magazine’s “Person of the Year” it's the US consumer who has kept the economy upright despite all the headwinds that buffet economic progress. The recent spike in inflation took its toll on household finances but wages caught up and have been running ahead of inflation for some time. The consumer has also been backstopped by record-high household net worth (HHNW).
US interest rates continued their decline, reaching new lows for 2024 as the Fed prepares to initiate a new cycle of rate cuts. At mid-month, the yield on the 2-year Treasury (which is most sensitive to Fed rate moves) had fallen to its lowest level since September 11th, 2022, and 30-year mortgage rates have fallen to their lowest levels since February 2023. At his Jackson Hole, Wyoming speech a few weeks ago, Fed Chair Jerome Powell said the Fed was satisfied that inflation would continue its progress toward the Fed’s 2.0%. The August inflation data (CPI & PPI) didn’t disappoint or upset the Fed, coming in pretty much as expected and keeping a rate cut at the September 18 FOMC meeting.
Despite all the worry over a pending recession, through June 30th the US economy has enjoyed eight straight quarters of growth, with GDP averaging close to 2.8% over those 24 months. And growth in the current quarter, which ends September 30th, is tracking somewhere between 2.0% and 2.5%. Q2 corporate profits and forward earnings projections point to continued growth in Q4 and into early 2025. As the saying goes, “profitable companies hire,” so job growth, while slowing (normalizing) somewhat of late, should continue to support wages and consumer spending in the quarters ahead.
In Conclusion
September enjoys the unsavory reputation of being a particularly tough month for the stock market and this year's edition appears bound and determined to live up to it. After reaching new record highs on July 16th, the markets have behaved like they are in a soap opera of old, with a new drama unfolding almost daily. However, the star of the show, the economy, remains unfazed after the initial shock of each new pitfall wears off. At mid-month, the S&P 500 sits less than 50 points from its recent July peak. We anticipate more market volatility through the November elections, but the drivers of economic growth remain in place and are being joined by more developments in artificial intelligence, biotech, robotics, etc., that will continue to boost US productivity and, thus, economic growth and corporate profits. Whatever the Fed does in cutting rates will only add a tailwind to an economy that is, once again, holding up much better than many anticipated as the year began.
