Weekly Market Update: October 7, 2024

Inflation remains on the right track. The pace of price growth moderated over the summer months, moving closer to the Federal Reserve’s target rate of 2%. This was reflected in the August Personal Consumption Expenditures (PCE) Price Index, which is the assessment of inflation most closely watched by the central bank. Both the PCE and core PCE (excludes food and energy) eased to 0.1%. On a 12-month basis, the headline figure fell notably, with the measure advancing 2.2%, down from the July increase of 2.5%.

The status of the labor market may now be a bigger issue for Fed officials. For the lead bank to be successful in orchestrating a “soft landing” for the economy, it may well depend on the job market holding up. The most recent Job Openings and Labor Turnover Survey (JOLTS) showed an improvement in labor market conditions, with available positions rising to 8.04 million in August. This may keep the Fed more measured on the interest-rate reduction front before year’s end. Investors should note that the September employment report was due shortly after we went to press.

Third-quarter earnings season is at hand. Forecasts are calling for mid-single-digit profit growth for S&P 500 companies. The period kicks off with results from the big money center banks, which will provide some clues about the health of the economy, as well as commentary about the Fed’s recent decision to pivot on the monetary policy front and what impact it may have on lending.

The U.S. consumer may be showing signs of fatigue. According to the Labor Department, the pace of personal spending growth fell to 0.2% in August, down from 0.5% in July. Likewise, August durable goods orders were unchanged, versus a gain of 9.9% in the previous month.This drop in spending comes at a time when the Consumer Confidence Index fell to its lowest level in more than three years. Meanwhile, manufacturing activity contracted for the sixth-consecutive month in September. A dock strike that began on October 1st, if it is prolonged, won’t help in these areas.

Conclusion: Equities rose in September, historically a bad month for stocks, fueled by the Federal Reserve cutting interest rates during a period of positive earnings growth. This created a favorable environment for stocks, though concerns about the economy and escalating geopolitical turmoil persist.

Source: ValueLine.com