September 2024 Market Lookback

Though summer officially came to a close in September, the stock market remained as hot as ever. Economic growth was revised higher, and while labor market concerns weren’t fully resolved, a decline in the unemployment rate helped ease jitters. To prevent any further weakening in the labor market, the Federal Reserve lowered interest rates by 50 basis points, more than the standard 25 basis point increment. Not to be outdone, China’s government unveiled its own stimulus measures in a bid to turn around its ailing economy. Investors reacted favorably to the announcement, with Chinese stocks having their best week ever.

Macro

•   The Federal Reserve lowered interest rates by 50 basis points, the first rate cut in more than four years, ushering in a new cutting cycle.

•   In their quarterly Summary of Economic Projections, Fed officials lowered their expectations for growth and inflation while raising their unemployment forecast.

•   The unemployment rate fell to 4.2% in August, in line with consensus estimates and the first decline since March.

•   August job openings declined to 7.7m, significantly below the estimate of 8.1m, while the number of jobs available per unemployed worker fell to 1.1.

•   According to the Conference Board, consumer confidence fell to an index value of 98.7, firmly below consensus of 104.0, as consumer concerns about job availability picked up.

•   West Texas Intermediate crude oil prices fell from $74 to $68 per barrel in September, after large oil producer Saudi Arabia indicated plans to increase oil supply and abandon its informal price target of $100/bbl.

Equities

•   Large-cap stocks outperformed small-caps, and growth stocks outperformed value, both by 1.4 percentage points.

•   Buoyed by a sharp rally in Chinese stocks in the last week of September, emerging markets handedly outpaced domestic and developed international markets.

•   Q3 EPS growth expectations for the S&P 500 were revised down from 5.3% to 4.3% in September, with smaller cap indexes showing even sharper downward revisions.

Fixed Income

•   2 and 10-year Treasury yields began the month at 3.92% and 3.90%, before trending lower on the mix of economic data and the larger-than-expected interest rate cut from the Fed.

•   The 2y10y yield curve spread firmly exited inversion in September, closing out the month at 13.8 basis points positive.

•   The MOVE Index, a proxy for interest rate volatility, fell to 94.6 in September, the lowest month-end reading since May.

The Fed Put Is Back

When market historians look back on September, they’ll see a particularly memorable month, with the Fed’s 50 basis point interest rate cut at the top of the list of notable events. And while it was larger than the standard 25 basis point increment, it’s worth noting that the cutting cycles of 2001 and 2007 also began with 50 basis point moves.

This cut, alongside comments from Chair Jerome Powell indicating the Fed didn’t want further labor weakening, contributed to a sense of confidence in markets that the Fed Put is back (that’s the idea that the Fed will step in to support markets, just like a put option protects investors from selloffs). Over the rest of the month, the S&P 500 rose 2.6% despite the usual September seasonal weakness, turning an okay month into a good one for stocks.

Under the radar, there were annual revisions to gross domestic product and income data that proved consequential. GDP and GDI both measure economic output, just from different underlying data, and so they should be more or less equal. Since mid-2022, however, they had diverged significantly, raising concerns that GDP might be overstating economic strength.

The revisions showed that not only were those fears overblown, but that economic strength was actually understated. So, an economy that’s strong and that the Fed wants to keep strong? Not bad.

The Chinese Dragon Roars

Up until this past month, Chinese stocks were in a multi-year bear market, as China’s economy was rattled with fits and starts related to its Covid policies, a crackdown on tech companies, as well as the ongoing fallout of a property housing market slump.

But last week, Beijing announced a stimulus package to try and turn things around, and so far investors are liking what they’re seeing – if U.S. markets had a solid September, stock market performance in China was absolutely euphoric.
In the week after the stimulus plan was announced, the CSI 300 rose 25%, the biggest single week jump since data became available in 2002. But Chinese stocks remain far below their all-time highs. To set a new record close, the index would have to rise another 45% from here.

The economic malaise in China runs deep, with the government announcing several policy plans in the last few years to try to address it. Gains after each of the prior announcements in November 2022 and April 2024 were short-lived, so there’s a risk that the same happens again. However, the intensity of this rally suggests investors are more hopeful and confident in success this go around, but nonetheless the Chinese economy has a deep hole to dig itself out of.

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Performance data quoted represents past performance. Past performance does not guarantee future results. Market returns will fluctuate, and current performance may be lower or higher than the standardized performance data quoted.

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