Weekly Market Update: September 30, 2024

The Federal Reserve has begun loosening the monetary reins. At the September Federal Open Market Committee (FOMC) meeting, policy makers voted to reduce the federal funds rate by a half point, to 4.75%-5.00%. This brought an end to the most restrictive monetary policy in four decades, and showed that the central bank was comfortable enough with the direction of inflation to begin cutting interest rates. Investors should note that the August Personal Consumption Expenditures (PCE) Price Index, the assessment of inflation most closely tracked by the Fed, was due shortly after we went to press.

How much further the Federal Reserve lowers the benchmark short-term interest rate before year’s end will likely be data driven. Our sense is that a couple of quarter-point cuts are possible, as monetary policymakers are concerned about the labor market. The pace of jobs growth slowed over the summer months, and the number of positions available fell below eight million, to 7.67 million, in July, the lowest level since January of 2021.

The recent declines in labor market data suggest the economy is slowing. It also raises concerns as to how long the consumer sector will remain resilient if more people are out of work and having a difficult time finding a job. The consumer also is racking up credit card debt at a record rate, with card balances totaling $1.14 trillion at the end of the second quarter. This may curtail the pace of spending in the months ahead, which includes the holiday shopping season. On point, The Conference Board’s Consumer Confidence Index retreated to 98.7 in September, the largest decline in three years.

Meanwhile, third-quarter earnings season will commence in a few weeks. The Wall Street consensus is calling for mid-single- digit profit growth for the S&P 500 companies, which would mark the fifth-straight quarter of year-over-year earnings growth. However, it should be noted that the average forecast has come down considerably in recent weeks, possibly reflecting some emerging weakness in the U.S.economy.

Conclusion: The stock market rallied on the Fed’s decision to reduce the federal funds rate by a half-point last month, with the age-old adage “don’t fight the Fed” on display. Going forward, we continue to recommend maintaining a portfolio consisting mostly of high-quality stocks.

Source: ValueLine.com