September Market Recap
At long last, rate cuts finally arrived in September.
While anticipated for months, the Federal Reserve on September 18 lowered interest rates for the first time in four-and-a-half years (March 2020). The fact that it was a 0.50% cut rather than 0.25% proved to be a pleasant surprise for stocks, which moved higher for the 10th time in 11 months despite an ugly start.
Eight of the 11 sectors in the S&P 500 delivered positive returns. Consumer Discretionary (+7%) and Utilities (+6.4%) performed best. Energy (-2.8%), Health Care (-1.8%), and Financials (-0.7%) finished in the red.
Benchmark Returns: September 2024 | YTD 2024
Dow Jones
|
S&P 500
|
NASDAQ
|
+1.85% | +12.31%
|
+2.02% | +20.81%
|
+2.68% | +21.17%
|
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September is historically the worst-performing month on the calendar for US equities. Markets bucked that trend this year, but it didn’t look that way initially. The first week of September was the worst week for stocks since March 2023.
The S&P 500 lost 4.3% in the four days immediately after Labor Day, the equivalent of 1,800 Dow points. Fortunately, stocks rose in each of the three weeks thereafter. On September 16, the Dow reached a new all-time high. By September 19, a day after the Fed’s interest rate cut, the S&P was back to record levels as well.
In hindsight, the September narrative was about investors making up their minds about two things: First, would the Fed lower interest rates by 0.25% or 0.50%. And second, should a larger cut be cheered for the added stimulus or create concern that our central bank deems it necessary in the face of a slowing US economy.
Ultimately, bullish sentiment won out. The sharp intramonth reversal in stocks began when consensus built regarding a larger 0.50% cut. The official announcement by Jerome Powell a week later further fueled the fire.
Bond yields fell in September, though not as much as you might expect. Ten-year US Treasury yields ended the month at 3.80%, down from 3.91% on August 31. It shows how much of the rate cuts had already been priced in to financial markets.
Fed cuts, by the way, have the most impact on the short-end of the yield curve, which “uninverted” early last month. For the first time since Summer 2022, two-year US Treasuries yield less than 10-year US Treasuries.
Cash yields also began to fall more significantly last month. Many low-risk money market funds that were paying north of 5% annualized have fallen to 4.7% or less. The reality of earning less interest on cash should ultimately be a tailwind for stocks.
Inflation continues to slow. The most recent Consumer Price Index (CPI) increased 2.5% year-over-year, the lowest mark since February 2021. The latest Personal Consumption Expenditure (PCE) index showed 2.2% inflation from a year ago (down from 2.6% a month earlier).
Falling oil and gasoline prices should also boost consumers’ spending power. The average cost of gas nationally has dropped to $3.20 per gallon, according to AAA. That’s the lowest in three years. One year ago, gas prices averaged $3.85 per gallon.
The latest jobs report showed the US economy created fewer new jobs than expected in August, although the “softer” employment data supported the forecast of a deeper cut in interest rates, which helped the stock rally.
Emerging Markets surged nearly 6% last month thanks to fresh stimulus from the Chinese government. Late in September, China’s central bank lowered interest rates and injected liquidity into its banking system in an effort to kickstart sluggish economic growth.
Ben Marks
Chief Investment Officer
Brett Angel
Senior Wealth Advisor
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
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