Ongoing Fed-Driven Rally Pushes Stocks to New Heights
by Sequoia Financial Group
by Sequoia Financial Group
S&P 500 Poised to End Third Quarter Near Record Level
Stocks built on recent gains last week, with the S&P 500 and Dow Jones indexes both rising to record highs. The economy remained front and center, as investors looked for evidence that the Fed’s initial rate cut will help accomplish its dual goals of keeping inflation under control while promoting maximum employment. The rate cut was seen as a victory lap over inflation, but also a response to a weakening job market. Last week brought updated readings on both.
Stocks started the week strong despite a weak report on consumer confidence[1]. The drop in confidence from August to September was the biggest drop in three years and reflected job-market and inflation concerns. However, strong showings from Nvidia and Caterpillar, along with a new China stimulus program, helped the S&P 500 and Dow Jones Industrial Average to close at record levels.
And a strong employment report Thursday put some labor market concerns to rest[2], at least for the moment. Jobless claims ticked lower and signaled that the Fed was not playing catch up with its initial rate cut. Durable goods orders also firmed up, despite expectations that they would decline in August. Finally, we got the last of three second quarter GDP readings, showing GDP rose at an annualized rate of 3% in Q2. Looking ahead, the Atlanta Fed GDPNow model projects similar growth for the third quarter[3], which ended yesterday.
The latest inflation report also calmed some fears. The Fed’s favored inflation reading (PCE inflation) rose just 2.2% over the last 12 months[4]. Expectations were for a slightly higher 2.3% increase. The annual reading was the lowest for PCE inflation since February 2021. Further, personal income and personal spending ticked slightly higher, indicating a healthy consumer overall. And the reports support the argument for future rate cuts, as the Fed looks to keep the economy on track heading in 2025. The market is pricing in a rate cut at the Fed’s next meeting in November, but is split on whether the cut will be a quarter point or half point[5]. Stocks head into October on a three-week winning streak.
Sources:
[1] https://www.cnbc.com/2024/09/23/stock-market-today-live-updates.html
[2] https://www.cnbc.com/2024/09/25/stock-market-today-live-updates.html
[3] https://www.atlantafed.org/cqer/research/gdpnow
[4] https://www.cnbc.com/2024/09/26/stock-market-today-live-updates.html
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