Market Update: October 22, 2024

 

Welcome to the Monthly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this month.

The market just continues to march higher despite war in the Middle East, slowing consumer spending, and a really tight race between these two.

For those wondering why I haven’t commented on the upcoming election, it’s because the results of the election do not matter to the long-term trajectory of the markets. There is no statistically significant difference between returns in a Republican presidency, a Democratic presidency, and a split government. Don’t let anyone tell you otherwise.

Going right back to things that do matter to the markets, we have seen a very strong “broadening” of market participation over the last three months with the equal weight index in purple outperforming the market cap-weighted S&P 500 in blue. More stock return participation is a sign of a healthy market. Although we haven’t yet seen participation out of the small caps just yet, shown here in orange. A small cap rally would indicate that monetary easing is having a tangible impact on the broader economy.

What we have seen is strong participation from Financials in green, industrials in purple, consumer discretionary in gray, and real estate in yellow. All of which are highly cyclical businesses and all of which are sensitive to interest rates. Thus, lower interest rates is having an impact on the larger cyclical businesses, we just haven’t seen that trickle down into the small caps yet.

As far as the direction of interest rates is concerned, the market is anticipating an 89% chance of a 25-basis point cut in the upcoming Fed meeting on November 7. And by June of 2025, the market expects a further 100-125 basis points worth of cuts, dropping the Fed funds rate down to 3.5-4%.

Meanwhile, the state of the economy remains strong as high yield bond spreads continue to fall indicating that investors are willing to buy junk-rated, high-risk bonds and have faith the high credit risk firms backing these bonds will continue to pay off their debt. Likewise, the consumer balance sheet remains incredibly strong with asset prices dramatically exceeding liabilities. The household debt service ratio has been on the rise but has essentially just returned to the pre-pandemic level, further indicating that consumers are in great shape financially. Although auto and credit card delinquencies are on the rise.

Thanks for joining for the monthly market update! We have a new podcast called “Business Tales.” You can find Business Tales on all your favorite podcasting apps. Also, our website is full of economic, financial planning, and market content. For those looking for more information please visit our website at signaturewmg.com. And don’t forget to like and subscribe.

Sources:

1. FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved October 22, 2024, from FactSet Database.
2. Capital Group, “Guide to investing in an election year.” 2024 Edition. Retrieved from https://www.capitalgroup.com/advisor/insights/ebook-guide-investing-election-year.html
3. FactSet Research Systems. (n.d.). S&P 500, S&P 600, and equal weight S&P 500 (interactive charts). Retrieved October 22, 2024, from FactSet Database.
4. FactSet Research Systems. (n.d.). Financials, industrials, VNQ, and consumer discretionary (interactive charts). Retrieved October 22, 2024, from FactSet Database.
5. FactSet Research Systems. (n.d.). Policy rate tracker (Markets). Retrieved October 22, 2024, from FactSet Database.
6. JP Morgan Asset Management. “JP Morgan Guide to the Markets.” Slide 20, Consumer Finances. 4Q 2024, as of September 30, 2024. Retrieved from https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/?gad_source=1&gclid=Cj0KCQjwmt24BhDPARIsAJFYKk17LdPjIaAwlZm2xGBwLe8mD6AUgbR-XEEAet38FEDjGNTT0v6tSX0aAgUYEALw_wcB&gclsrc=aw.ds

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