Weekly Market Update: September 24, 2024

The Federal Reserve has pivoted on the interest-rate front. Indeed, the Federal Open Market Committee (FOMC) reduced the federal funds rate by a half-point, to 4.75%-5.00%, this month after pausing at each of the prior eight monetary policy meetings. The decision was prompted by an improving inflation outlook and concerns about a weakening labor market.

The recent slowing in job growth is a concern for the Fed, as it tries to orchestrate a “soft landing” for the U.S. economy. The nation added an estimated 142,000 jobs in August, falling short of the consensus forecast of around 160,000. Once again, the Labor Department report included sharp downward revisions to the previous two months’ job creation figures. That, along with a decrease in the number of job openings in August, suggests the labor market is slowing, which eventually may bode ill for the nation’s gross domestic product.

All the while, the U.S. consumer sector is proving resilient. On point, the University of Michigan’s Consumer Sentiment Index climbed to 69.0 in September, the highest level since May and up from 67.9 in August. The report showed that lower prices for durable goods, including cars and furniture, is fueling consumer spending. But how long will this last, as a significant portion of recent spending has been of the “buy now, pay later” variety? U.S. credit card debt totaled a record $1.14 trillion in the second quarter, which may, along with the aforementioned softening labor market, give the consumer some pause heading into the holiday shopping season later this year.

Treasury yields are falling. The downward moves were a reaction to the Federal Reserve beginning to loosen the monetary reins, as well as building concerns about the U.S. economy. The latter prompted investors to seek the safety of government-backed fixed-income securities. (The price of a bond moves inversely to its yield.) In the same vein, the price of gold, another safe-haven investment, recently hit a record high.

Conclusion: We are in the part of the calendar that has historically proven to be a volatile stretch for the U.S. stock market. Given this backdrop, we recom- mend maintaining a portfolio consisting of high-quality stocks and cash-equivalent securities.

Source: ValueLine.com