Weekly Market Update: October 22, 2024
The latest round of inflation data was mixed. The September Consumer Price Index (CPI) came in above forecast, with the headline figure rising 2.4% over the 12-month period. That tally was down from the previous month’s reading of 2.5%, but above the consensus estimate of 2.3%. However, the companion report on producer prices was benign, with prices at the wholesale level increasing just 1.8% year over year. In all, the data did not change the narrative that the Federal Reserve will likely continue to cut the federal funds rate at the next monetary policy meeting. That said ...
The central bank is now likely to reduce the benchmark short-term interest rate by a quarter point at the November Federal Open Market Committee (FOMC) meeting. The September price data suggest that a modest interest-rate cut or even a pause is appropriate, but the Fed also doesn’t want to risk putting pressure on the labor market, which held up very well during the increasingly restrictive monetary policy course. The September laborreport,whichincludedanestimated gain of 254,000 jobs and a downtick in the unemployment rate, was strong, but the Fed appears more worried about the months ahead. On point, initial jobless claims during the first week of October spiked to 258,000, far exceeding the consensus forecast.
Third-quarter earnings season is in full swing. The initial returns were favorable, with the big money center banks exceeding profit expectations. Overall, the consensus is calling for mid-single-digit earnings growth, on average, for the S&P 500 companies. This is likely needed to justify the elevated price-to-earnings multiple for the Index.
The environment overseas is unsettled. There is escalating fighting in the Middle East and Ukraine, which continues to threaten global supply chains. Meanwhile, China’s economy, plagued by deflationary pressures, continues to struggle, so much so that Beijing is expected to implement a sizable stimulus program to boost the world’s second-largest economy.
Conclusion: The major equity averages were at or near record highs in mid-October, with the recent economic data keeping the possibility of a “soft landing” in place for the U.S. economy. That assuaged concerns about domestic growth and pushed investors back into riskier holdings.
Source: ValueLine.com
