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September 03, 2024

Beacon Weekly Investment Insights 9.3.24

Chief Investment Officer, John Longo, PhD, CFA, provides insights to guide you through changing market conditions. Please read the full text below or download the PDF version.

The bulls continued to run on Wall Street with the S&P 500 increasing a modest 0.25% last week and reapproaching its all-time highs. The sharp, but quick, pullback that occurred earlier in August has now largely been forgotten. A confluence of events has led to the continued stock market rise. Investors are still reading the economic tea leaves from Fed Chair, Jerome Powell’s, comments from the prior week at the Federal Reserve’s annual Jackson Hole Symposium. The magic words that Powell uttered, “The time has come for policy to adjust” seemed to confirm that a cut in short-term interest rates is imminent and may have put a bid under U.S. stocks.

The case for an interest rate cut was bolstered by signs of continued decelerating inflation according to the Personal Consumption Expenditure (PCE) Report, the Fed’s preferred measure of inflation. The PCE inflation rate increased 2.5% year-over-year, slightly below the market’s expected increase of 2.6%. The Core PCE figure, which excludes volatile food and energy prices, showed a 2.6% year-over-year increase, once again below the consensus estimate of 2.7%.

On the earnings front last week, all eyes were on artificial intelligence (AI) titan, Nvidia. The firm delivered sales and earnings figures that beat expectations and announced a $50 billion stock buyback plan, but tempered its outlook somewhat. The stock fell nearly 8% last week, but some perspective is warranted. Nvidia remains up more than 140% for the year and the firm did enough to keep the AI train rolling in the minds of most investors.

Positive views on the U.S. economy were further reinforced by the upward revision of Q2 U.S. GDP growth estimates from 2.8% to 3.0%. The services side of the economy has continued to perform well despite the long-term sluggishness that continues to persist in the manufacturing sector. The Case-Shiller National Home Price Index was released last week and reached an all-time high, increasing 5.4% on a year-over-year basis. Home prices got a second wind as 30-year mortgage rates have come down from roughly 7.5% to 6.5% within the past year.

As we have mentioned in our past writings, the lower income consumer continues to struggle with the ravages of inflation. Dollar General, an important bellwether for the cost-conscious consumer, issued a disappointing earnings report and outlook. Its stock plummeted a harrowing 33% last week, its biggest drop on record. Chinese consumer firm, Pinduoduo, owner of the low cost Temu marketplace, announced similarly disappointing earnings the week prior.  

The turn of the calendar month usually results in the release of a number of important economic reports. The Institute for Supply Chain Management (ISM) releases its Manufacturing Report on Tuesday and its Services Report on Thursday. The ISM trends have been fairly consistent for the past one to two years. Namely, mild weakness in the manufacturing sector offset by moderate strength in the services sector.

The nonfarm payrolls or jobs report will be released on Friday. Since this report produces the unemployment rate statistic it will be watched very closely and may foretell the Fed’s next move. Currently the odds are skewed towards a 25 basis points cut in September, but if unemployment rises further, a 50 basis point cut may be on the table. Two Federal Reserve governors, John Williams and Christopher Waller, will be on the road Friday, perhaps further clarifying the Fed’s thought process on future rate cuts. We hope you enjoyed the unofficial end of summer over Labor Day weekend.

 

Market Scorecard:	8/30/2024	YTD Price Change
Dow Jones Industrial Average	41,563.08	10.28%
S&P 500 Index	5,648.40	18.42%
NASDAQ Composite	17,713.63	18.00%
Russell 1000 Growth Index	3,679.12	20.56%
Russell 1000 Value Index	1,848.05	13.42%
Russell 2000 Small Cap Index	2,217.63	9.40%
MSCI EAFE Index	2,453.44	9.72%
US 10 Year Treasury Yield	3.911%	5 basis points
WTI Crude Oil	$73.65	3.25%
Gold $/Oz.	$2,536.00	22.40%