Market Brief: November 2024

November 1, 2024

The Markets (as of market close October 31, 2024)

Stocks closed lower in October as Wall Street couldn't maintain the momentum from September's strong showing after the Fed lowered interest rates. Equities began October on an upswing on the heels of a better-than-expected jobs report. In fact, during the first half of the month, the Dow and the S&P 500 reached record highs. However, investors began moving away from risk as the unrest in the Middle East intensified and sentiment grew that the Fed may not cut rates in November. Toward the end of the month, disappointing earnings data from big tech companies raised concerns about rising AI costs and the potential for profit pressures. Among the market sectors, only communication services, financials, and energy outperformed. Health care, materials, real estate, and consumer staples lagged.

Inflationary data showed price pressures edged higher but came within expectations. For the 12 months ended in September, the Consumer Price Index (CPI) dipped lower, while the annual rate for the personal consumption expenditures (PCE) price index came in at 2.1%, the lowest rate since early 2021 as each indicator moved closer to the Federal Reserve's 2% target rate range.

Growth of the U.S. economy continued at a modest pace. The gross domestic product (GDP) met expectations after increasing 2.8% in the third quarter following a 3% increase in the second quarter (see below). Personal consumption expenditures, the largest contributor in the calculation of GDP, rose 3.7%, with spending rising in durable and nondurable goods. Government expenditures, up 5%, were the second largest contributor to GDP.

Job growth in September exceeded expectations after adding 254,000 jobs, which followed upward revisions in July and August. The unemployment rate slid 0.1 percentage point to 4.1%, while the number of unemployed declined. Wage growth rose 0.4% in September and 4% over the past 12 months. The Fed's 50-basis-point decrease in interest rates probably played a large part in the spurt in job growth in September. However, the latest jobs data also will likely encourage tempering the pace of further rate cuts. New weekly unemployment claims decreased from a year ago, while total claims paid increased.

With about 37% of the S&P 500 companies reporting, third-quarter earnings results have been mixed. While the S&P 500 reported earnings growth for the fifth straight quarter, it was the lowest growth rate since the second quarter of 2023. Of the companies reporting thus far, roughly 75% have indicated actual earnings per share (EPS) above estimates, below the 5-year average of 77% but equal to the 10-year average of 75%. Companies in the financials and consumer discretionary sectors were the largest contributors to the increase in overall earnings growth thus far. On the other hand, earnings lagged from companies in the industrials, health care, and energy sectors.

Rising mortgage rates have cooled real estate sales over the past few months. However, with rates gradually falling and inventory increasing, the home sector is expected to bounce back. In September, sales of existing homes declined, while new home sales increased. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.44% as of October 17, up from 6.32% one week earlier but down from 7.63% one year ago.

Industrial production retracted in September from August, which saw a 0.3% decline. Manufacturing output decreased 0.4% in September and was 0.5% below its year-earlier level. Purchasing managers further endorsed this trend and reported that manufacturing continued to slow in September. On the other hand, the services sector rose modestly higher.

 

October proved to be a rocky month for bonds. Ten-year Treasury yields closed the month up, reaching the highest level in over three months, as favorable economic data supported the notion that the U.S. economy could withstand higher interest rates. The two-year note closed October at 4.18%, a monthly gain of 5.7 basis points. The dollar strengthened, marking its strongest monthly gain in over two years. Gold prices hit a record high of $2,790.00 during the month, only to slip lower but well into the black for October. Crude oil prices rose higher by the end of the month but remained somewhat subdued, as investors anticipated a supply increase by OPEC+ in October and decreased demand in China. The retail price of regular gasoline was $3.097 per gallon on October 28, $0.082 below the price a month earlier and $0.376 less than the price a year ago.

 

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking ahead

All attention will focus on the results of the presidential and congressional elections in early November. In addition, the Federal Reserve meets this month. After lowering the federal funds target rate range by 50 basis points in September, it is questionable whether an additional decrease is in the offing in November. However, the Fed meets again in December and may consider an interest rate adjustment.

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