Market Commentary
For the week ending 9/6/2024
Historically, September has been one of the worst months for stocks, averaging a 0.7% loss since 1950. Recently the trend has been even worse, with the S&P 500 declining 4.9%, 9.3%, 4.8%, and 3.9% over the last four years. It seems 2024 is proving to be no exception. It’s still early and stocks could conceivably rally, but, to begin the month, the S&P 500 suffered its worst weekly drop in 18 months, falling 4.2%. Tech stocks led the declines, which is understandable given how much share prices in the tech sector have soared since the bottom of the pandemic lows. Energy stocks were also weak following a sharp decline in oil prices. Defensive sectors such as utilities, consumer staples, and real estate held up better but nobody escaped unscathed. Markets were closed Monday in observance of the Labor Day holiday.
It wasn’t just the calendar or Wall Street being in a sour mood that the summer holiday season is officially over. The week’s economic data was a source of worry as well. On Tuesday, the Institute for Supply Management (ISM) reported that its gauge of U.S. manufacturing activity remained firmly in contraction territory in August, with new orders falling for the third consecutive month. Wednesday’s JOLTS report, which tells us how many job openings there are had a huge downside surprise. The number of unfilled positions fell to 7.7 million, its lowest level since January 2021. Job openings peaked at nearly 12 million in 2022. The number of people leaving their jobs voluntarily, often considered a better gauge of the strength of the labor market, was higher. But that uptick was measured off an unusually low reading in June. On Thursday, payroll processing firm ADP reported its count of private payrolls had increased by 99,000 in August, well below forecasts and the lowest since January 2021.
Friday’s official payrolls report from the Labor Department painted a more complicated picture of the health of the labor market. Overall, employers added 142,000 jobs in August, below consensus estimates of around 160,000, while July’s gain was revised down to 89,000, marking the lowest level since December 2020. The household survey revealed that the unemployment rate had ticked lower, however, from 4.3% to 4.2%. Average hourly earnings also rose 0.4%, better than expected.
The Fed’s Open Market Committee will meet on the 17th-18th of this month and they have signaled that this will be the meeting where they finally begin to cut their benchmark Fed Funds Rate. With little doubt on Wall Street that a rate cut is forthcoming, speculation has turned on how deep the rate cut will be. Most expect a quarter-percent, but there is a substantial minority who think that a half-percent cut is both necessary and imminent. Friday’s not-terrible jobs report now gives the edge to those expecting just a quarter percent.
The Consumer Price Index (CPI) will be released this week on Wednesday. It will be the last major economic release before the Fed meets and could have an impact if it strays markedly from forecast. A higher-than-expected reading would have the most impact, forcing the Fed to proceed cautiously with a quarter-percent cut. A lower-than-expected reading would give the Fed room to cut further, but not force their hand if they’ve already decided a quarter percent cut is enough for now.
Generally speaking, any cut by the Fed would bolster Wall Street and we would expect stocks to rally on the news. However, if the economic data continues to trend downward, then Wall Street might conclude that the Fed is “behind the curve” in lowering rates and the sell-off could continue. Looking past September (October is the second worst month of the year for stocks) we agree with the loose consensus of economists that the economy is slowing down but not headed for recession. That could always change if the data comes in worse than feared. But for now, we think there’s enough underlying strength that we’ll avoid a recession and things will pick up in 2025.
For the week, the Dow Jones fell 1,218 points to 40,345 (-2.9%), the NASDAQ was down 1,023 points to 16,691 (-5.8%), and the S&P 500 declined 240 points to 5,408 (-4.2%)
Oil plunged $7.50 to $67.50/bbl. Gold fell $22 to $2,524/oz.
And the yield on the 10 yr. Treasury ticked down 0.1 to 3.7%
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