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WEEK AHEAD
October 21-25, 2024
With equities on a steady upward climb, our momentum signal stays bullish, countering a slowing yet resilient economy. For now, our TAP signals remain fully committed to the market.
With just 15 days until the 2024 presidential elections, market activity continues to center on economic fundamentals rather than the political narrative. Following the Fed's September 18th FOMC meeting, which cut the policy interest rate by 50 basis points, the stock market has seen five consecutive weeks of gains. The S&P 500 closed the week up 0.87%, bringing its year-to-date advance to an impressive 24.33%, narrowly edging out the Nasdaq Composite.
Financial stocks were a standout, with the sector posting a weekly gain of 2.63%. Heavyweights like Goldman Sachs, Morgan Stanley, Charles Schwab, and Travelers beat "consensus" earnings estimates by 23%, 20%, 2.7%, and 38%, respectively, driving bullish sentiment. However, the real star of the week—and the year—was the utilities sector, particularly clean energy stocks. Riding the wave of the electrification boom, fueled by advancements in AI and electric vehicles, utilities posted a 3.28% gain for the week, extending their YTD surge to 33.55%. This rally highlights how certain sectors align with structural shifts in the economy and Fed policy, positioning themselves as long-term beneficiaries of transformative technologies.
The coming weeks will see the market’s attention shift from financials to a fresh round of quarterly earnings, with industrial giants and consumer staples taking center stage. Heavyweights like Nucor, GE Aerospace, Verizon, Tesla, Coca-Cola, IBM, Amazon, and UPS are set to unveil their results, giving investors a clearer picture of where the economy stands. Sowell will pay particular attention to the economic sentiment leading up to the next FOMC meeting on Nov. 7th, two days after the elections and weighing the trade-offs between growth, inflation, and interest rates as the year winds down.
"The beginning of the rate cut cycle has renewed optimism for a soft landing, which should spur increased economic activity."
— David Solomon, Chairman and CEO, Goldman Sachs Q3 2024 Earnings Call, October 15, 2024
US CPI Disappoints
The U.S. Bureau of Labor Statistics (BLS) released September inflation data, and the report was a mixed bag. Headline CPI slowed for the sixth consecutive month, ticking down to 2.4% from 2.5% in August, the lowest reading since February 2021. That's positive because we're still making incremental progress toward the Fed's 2% target, but economists were expecting 2.3%, making September's print an upside surprise. Likewise, the month-over-month price increase was identical to August's 0.2% rise and higher than economists' 0.1% estimate.
Unfortunately, a big chunk of September's disinflation came from the 4.1% drop in gas prices during the month. Indeed, year-over-year core inflation, stripping out volatile food and energy prices, actually rose from 3.2% in August to 3.3% last month; economists had been expecting core CPI to hold at 3.2% in September. The Fed will be watching shelter costs, in particular, which rose 0.2% month-over-month—better than the 0.5% rate clocked in August, but still too sticky at 4.9% year-over-year, accounting for nearly two-thirds of the increase in core CPI for September.
Consumers feeling the pain
Headed into a contentious November election, it's worth thinking not just about how the Fed will interpret these numbers but how they feel to households facing them on a day-to-day basis. To that end, data from the University of Michigan released last month showed that most consumers continued to feel the pinch of high prices more viscerally than recent BLS reports might suggest. Especially for lower-income households, whose budgets have been most impacted, 2024 has been marked by a sharp rise in expectations for longer-term price increases (see below).
Sticky CPI looms over next FOMC
Of course, nobody on the FOMC is predicting CPI to hit 9% anytime soon—or, if they are, it's not something they're willing to admit on the dot plots we've seen. But in all seriousness, the recent stickiness in CPI will obviously factor significantly into discussions over the central bank's policy move in early November. In fact, the same traders who saw a nearly 35% probability of another 50-bps cut at the next FOMC at the beginning of October are now pricing in better than 1-in-10 odds of no change at November's Fed meeting and see no chance of another half-point cut.
Disclosure: Reprinted and revised with permission from Rayliant Investment Research in partnership with Affinity Investment Advisors. The article was originally published on October 14, 2024.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.