Weekly Newsletter: October 28, 2024
The comments have been used before, but these days are feeling like “clowns to the left and jokers to the right.” And then there is the political environment. Earnings season is in full swing with many companies beating estimates (again). However, in many cases, their guidance about the future falls short, pushing stocks lower. The economic data was “meh” on the week but gets exciting as the final week of October closes with the employment report. Last month’s surprising strength may be reversed partly from the hurricanes that ravaged Florida and North Carolina. The Fed cut of interest rates was due in large part to worries over a weakening in the jobs data. Another strong jobs report could keep the Fed on the sidelines when they meet the day after the election. Since the last rate cut, interest rates have been gradually increasing, in large part to bond market investors’ belief the Fed made a mistake. This will be a good week to read a good book rather than watch the idiot box.
The economic data landscape last week was riddled with survey data, rather than “hard” data. That will change this week, as the employment report, GDP, inventory levels, and construction spending are all released. Based on estimates, economic growth should be “above trend” at 3%+, and the jobs data reversing some of last month’s strength. Wage growth will also be scrutinized, to determine if the “average worker” maintains their lead on inflation. Over the past 18 months, wage growth has been above the inflation rate. This is a broad-brush look, and there are still parts of the economy and workers not keeping up, but the economic releases have supported stronger consumer spending. If indeed the economy is strong, it will be harder for the Fed to justify cutting rates further in two weeks. The election will have some impact on the markets, but those effects tend to be rather short-lived, and soon thereafter, the focus shifts back to the economy and overall economic/earnings growth.
The interest rate market is calling out the Fed for making a rate cut larger than many thought necessary. Ever since the last Fed meeting, rates have been slowly rising and effectively erasing all of the 50-basis point cut of six weeks ago. Commodity prices have ticked up recently but remain unchanged vs. a year ago. The one highlight of the bond market is the very narrow differences between corporate, high-yield bonds and treasuries. It is symptomatic of a lack of concern about future risks beyond the treasury market.
For the first week in six, the markets declined. Call it a reaction to a very close election, to some poorer earnings, or just plain profit-taking. Whatever the reason, it was not done aggressively, and little “damage” has been done to the investor psyche. Another packed week of earnings should provide investors with some answers about corporate health and the outlook going into the final quarter of the year. Technology earnings are due over the next two weeks and may hold the key to further gains in the broader averages, as they remain significant weights in the SP500. The more modest valuations of “value” and small-cap stocks may allow those to weather potential storms in the weeks ahead. By mid-November, when all the earnings have been tabulated, the valuation picture should be a bit clearer for not only the tech sector, but the broader averages.
Halloween might be scary for trick-or-treaters. It may be for investors too, if the employment report comes in hotter than the 100k that is currently estimated. All of this is a prelude to the elections the following week and likely some short-term volatility.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.