At TM3 Wealth, it is important that you are well-informed about what is happening in the markets. Here are a few of the key topics of conversation that deserve the most attention this month. If you have any questions or would like to continue the conversation, please reach out.
September’s Consumer Price Index (CPI) report brought both relief and caution. The good news was that rent prices had finally started to cool off more quickly1. However, persistent inflation in key services and stalled progress in core goods tempered the positive news1. The headline CPI rose by 0.2%, with shelter and food prices contributing over 75% of the total monthly rise1. Meanwhile, core CPI, which strips out food and energy, climbed by 0.3% for the second straight month1. On an annual basis, headline CPI increased by 2.4%, marking its slowest growth since February 2021, while core CPI rose by 3.3%1. The report probably won’t alter the Federal Reserve’s view that inflation is on a downtrend trajectory, and the committee is expected to cut rates by 25 basis points at the November meeting2.
After previous signs of cooling, the labor market improved in September, as the US jobs report showed unexpected strength. The unemployment rate fell to 4.1% from 4.2%, while 254K jobs were added across the economy, significantly higher than August’s jobs report3. Additionally, both July and August jobs reports were revised up by a combined 72K, reinforcing the positive trend in job growth3. Looking ahead, jobless claims are expected to remain elevated during the week ending Oct. 12, due to Hurricane Milton and the Boeing workers’ strike, which could negatively impact October’s numbers4.
Chinese stocks have surged since September 24, after the central bank unveiled its largest stimulus since the pandemic, including cutting borrowing costs to support the struggling property market5. These efforts, along with moves to improve market liquidity, sparked rallies in local stock markets as well as broader emerging market indices and boosted China-exposed stocks like European luxury brands6. The momentum faded on October 9, as Chinese stocks plunged, and the CSI 300 dropped 7.1%6. A press conference by the Chinese Finance Ministry provided few details on stimulus plans, increasing uncertainty and underscoring the risks of relying on such measures for investment growth7.
The bottom line: In the coming weeks, investors’ attention may turn to third-quarter earnings, and recent headlines over geopolitical risks, the upcoming election, and future Federal Reserve policy may take a bit of a backseat, at least for a bit. The strength of the upcoming earnings season may influence market sentiment in the short run, particularly given the divergence between company outlooks and analyst forecasts8. Analysts expect S&P 500 companies to report a 4.2% increase in third-quarter earnings compared to the same period last year and have cut their forecasts since July, but company guidance remains more optimistic8. The “Magnificent Seven” stocks will be in the spotlight, having fueled much of the market rally this year. Despite recent underperformance, their earnings are expected to grow by 18%, significantly above the expected results across the S&P 5008.
Sources:
- Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
- CME Fed Watch Tool, as of October 15, 2024, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
- Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
- Bloomberg News, https://www.bloomberg.com/news/articles/2024-10-14/waller-says-fed-should-cut-with-caution-at-deliberate-pace
- Reuters, https://www.reuters.com/world/china/china-unveils-broad-stimulus-measures-revive-economy-2024-09-24/
- Morningstar, https://www.morningstar.com/markets/chinese-stocks-rally-then-plungewhat-happens-next
- Bloomberg News, https://www.bloomberg.com/news/articles/2024-10-13/china-puts-investor-patience-to-test-as-key-meeting-underwhelms
- Bloomberg News, https://www.bloomberg.com/news/articles/2024-10-14/ceos-and-analysts-are-at-odds-about-s-p-500-s-earnings-outlook
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Index Benchmarks presented within this report may not reflect factors relevant for your portfolio or your unique risks, goals or investment objectives. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index.
The CSI 300 (China Securities Index 300) is a capitalization-weighted stock market index designed to replicate the performance of the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. It has two sub-indexes: the CSI 100 Index and the CSI 200 Index.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The Bureau of Labor Statistics (BLS) is an agency of the United States Department of Labor. It is the principal fact-finding agency in the broad field of labor economics and statistics and serves as part of the U.S. Federal Statistical System. BLS collects, calculates, analyzes, and publishes data essential to the public, employers, researchers, and government organizations.
The CME FedWatch Tool is a tool created by the CME Group (Chicago Mercantile Exchange Group) to act as a barometer for the market’s expectation of potential changes to the fed funds target rate while assessing potential Fed movements around Federal Open Market Committee (FOMC) meetings.
The Magnificent 7 stocks are a group of mega-cap stocks that drive the market’s performance due to their heavy weighting in major stock indexes such as the Standard & Poor’s 500 and the Nasdaq 100. The group’s seven stocks earned their name in 2023 due to their strong performance and ability to power indexes higher seemingly without help from smaller stocks. The Magnificent 7 includes the following: Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG and GOOGL), Amazon (AMZN), NVIDIA (NVDA), Tesla (TSLA), and Meta Platforms (META).
