Daily market snapshot (2024)

Friday, 9/13/2024 p.m.

• Stocks close higher for the fifth day – Stock markets closed higher on Friday for the fifth straight day. The S&P 500 is up over 4% this week after falling about 4.2% last week*. This comes as both consumer price index (CPI) and producer price index (PPI) inflation figures this week came out largely in line with expectations for the month of August. Headline CPI inflation has now eased to 2.5% year-over-year, gradually moving toward the Federal Reserve's 2% inflation target. Meanwhile, bond yields continue to move lower, with the 10-year Treasury yield close to the lows of the year at around 3.66%, well below its April highs of about 4.7%*. The moves lower in yields are driven by cooling economic growth and inflation, as well as markets anticipating the Fed lowering interest rates in the months ahead. In our view, the combination of lower interest rates, easing inflation, and economic growth that is cooling but still positive continues to support the ongoing expansion in stock-market returns.
  
• Market leadership rotates this quarter – Overall for the third quarter thus far, which began on June 30, the S&P 500 is up about 3%*. However, underneath the surface there has been a meaningful sector rotation. The sectors that have gained the most include interest-rate-sensitive parts of the market, like real estate, utilities and financials, as well as some defensive parts of the market, like consumer staples and health care. The lagging sectors this quarter that have negative returns include technology, communication services and energy*. In particular, the tech and communication services sectors, including many of the mega-cap artificial intelligence (AI) giants, had been the darlings of the market over the last 18 months or so but are seeing slowing momentum recently. This comes as the Fed is poised to cut interest rates and as earnings growth expands. In our view, one theme over the next year will be an ongoing broadening of market leadership, and investors can look to complement their growth and AI investments with value and cyclical stocks, as well as U.S. mid-cap equities.
  
• All eyes turn to next week's Federal Reserve meeting – The Federal Reserve will meet next week and will release an interest-rate decision on Wednesday, followed by a press conference by Fed Chair Jerome Powell. In addition, the Fed will deliver a new set of economic projections and an updated "dot plot," which outlines the Fed members' best guess on the path of interest rates. Markets will be watching closely to see how many implied interest-rate cuts there are for this year and 2025, as well as where the Fed expects interest rates to go over the long run. In the June meeting, the Fed had outlined just one rate cut in 2024, followed by four in 2025, and another four in 2026, bringing the fed funds rate to 3.1%*. In our view, the Fed is poised to cut rates next week, most likely by 0.25%, and will likely cut rates twice more after this in 2024. It also may set the stage for outsized rate cuts in the months ahead. The Fed has clearly shifted its focus from inflationary pressures, which have eased in recent months, to the slowing U.S. labor market. To us, the Fed will not risk further downside pressure to the economy and will likely signal to markets that it is poised to undertake a significant easing in monetary policy to ensure that the labor market and economy stabilizes from here.

Mona Mahajan
Investment Strategy

^{Source: *FactSet}