Commentary for September, 2024

Hello all - we hope you had a nice September.

Stocks started the month with losses, but quickly turned it around to end the month with modest gains.  The Dow was up 1.3%, the S&P 500 rose 2.1%, and the Nasdaq, which has a higher concentration of tech stocks, gained 0.8%. 

Here’s a look at how the markets moved this month:

The end of September also marked the end of the third quarter.  Here’s a look at how the different sectors performed over that period.

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CENTRAL BANKS MOVE MARKETS

Central banks around the world could take the credit for much of the moves in the markets this month.

We’ll start with our Fed, who lowered the cost of borrowing by cutting interest rates 0.50%.  This is their first rate cut since 2020.

 

Much of the gains in stocks actually came in the days before the Fed meeting (the announcement was Sept. 18th).  Economic data like lower inflation levels supported the likelihood that the Fed would lower rates as much as they did, so stocks rose on that news in anticipation of the rate cut.

The announcement saw an initial jump in stocks, but the markets closed the month with little change from there.  

The other central bank making headlines was China.  The Chinese economy has slowed recently, so the policymakers announced a massive stimulus program to help the economy.  That boosted their market sharply to the highest in almost two years and also gave some support to markets around the globe.

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ECONOMY

We’ve heard a lot recently about how strong our economy is and how we’ve achieved a “soft landing” where we’ve avoided a recession.  However, the data we follow shows a recession is closer than ever.  

First, we’ll look at the yield curve, which is something we’ve talked about often.  We won’t go into specifically what this is, but the chart is what’s important.  

In the chart below, notice how the blue line dips down and pops back above that black horizontal line.  Every time this happens a recession follows (a recession is noted by the gray shaded area).  If history holds true, this chart suggests that a recession is very near.

Another recession indicator we talk about every month is the leading economic indicators.  This index combines several indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).  

This index continues to be negative, and it has never gone this long without a recession following.

Finally, another recession indicator we’ve probably never talked about before – art.  The performance of auction house Sotheby’s is viewed by many economists as a good barometer of economic health.  (It used to be publicly traded, but is no longer, making the indicator more difficult to follow)

As this article indicates, the art market is “tanking.”  This is another red flag to keep in mind.

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INFLATION

Let’s look at the inflation data from this month, where the annual inflation rate continues to move lower.

But that’s looking at inflation from an annualized measurement (counting the previous 12-month numbers).  When you look at inflation month-by-month, inflation is still rising, just not as quickly.  That means prices are still going up, just not as fast.

When excluding energy and food from the calculation (which economists call the “core” measurement), we can see inflation still rising solidly every month.

The PPI, which is the inflation at the business level before they pass on the price increases to us, rose again last month.   

Last is a chart that shows the real problem with inflation.  Every monthly inflation number builds on the month before, so every month prices are rising higher and higher.  After the pandemic, prices rose sharply and have continued to rise at a faster pace. 

Every time policymakers and the press cheer a “lower” inflation number, know that it’s a lie.  This is why so many Americans are hurting – price levels have risen rapidly and keep going higher.  

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OTHER ECONOMIC DATA

Getting into some other economic data released this month, the data was mostly positive but there were some areas of concern.  

The first concern was the level of job openings.  Job openings have declined steadily for the past year.  

It’s also concerning to investors because the level of job openings and the level of the stock market tends to move in the same direction, as we can see in the chart below.  Eventually that gap will close – but will it be because of higher job openings or a lower stock market?

As for the strength of the manufacturing and service parts of our economy, both saw a slight improvement last month.

Retail sales saw a slight increase on the month.

Durable goods (these are items with a longer life, like a phone or refrigerator) was flat on the month, but economists predicted a large drop, so this could probably be considered a positive.

Consumer confidence moved slightly lower:

Small business optimism moved lower, too:

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Where does the market go from here?

Almost identical to last month, we quickly went from oversold conditions in the market (cheap) to overbought (expensive).  This isn’t a place we’d be comfortable putting new money to work.  

Additionally, we are entering a very volatile time of the year.  October is a notorious month for the markets, and election years compound that volatility.  As the chart below shows, markets are historically lower this time of an election year, so we advise caution.

This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.