I couldn’t believe it the other day…I couldn’t believe my eyes. I sat there staring at my phone…mixed emotions flowing through me. I asked if it was a “live” picture or one from the past. Oh, it was current alright...with a smiley face. The NERVE! What was it a picture of? It was life-size Grinch decorations on the store floor…in September. I still can’t believe it, but it IS about time. No matter how I feel about it, it’s coming. Another Presidential election news cycle! 😊
The S&P 500 ended its best first three quarters since 1997 with a roughly 20% advance in 2024.[1] Increasing expectations for global stimulus and a largely resilient US economy have been the big picture “drivers” of late. So far, September 2024 is shaping up to be the biggest month of global monetary policy easing since the pandemic crash.1 The Federal Reserve delivered a half percentage cut to its policy interest rate, China followed up with multiple rate reductions, relaxation of bank reserves, and a specific program to support equity markets. Cooling consumer-price growth across the 20-nation Euro Zone has allowed the ECB to lower its deposit rate twice this year. Ultimately the global policy winds have shifted as post pandemic inflation has dropped. Economic growth is now the key focus of markets.
· A Goldman Sachs Group Inc. basket of most-shorted stocks is up 17% year-to-date, in the latest sign of pain for equity bears.1 This is one of many pieces of evidence that so called upside participation in the stock market has continued to broaden out beyond just the largest companies. Assuming this dynamic continues we believe there are various opportunities in select pockets of both the domestic and non-US stock market.
· Treasuries are poised for their longest monthly winning streak in 14 years1 as traders bet on more reductions in interest rates as the Federal Reserve aims to deliver an economic “soft landing”. US government bonds ended Q3 with a fifth month of gains in the longest run since 2010. 1 The gauge has been rallying since the end of April, extending this year’s gain to 3.8% — and its advance over the past 12 months to nearly 10%.1 Traders are pricing in about 0.37% worth of easing by the end of November and roughly 0.75% of cumulative cuts by the end of 2024. 1 That implies that markets see a 50% chance that Fed officials deliver another half-point reduction at their next policy meeting as of the end of Q3.
· Crude is on track for a quarterly decline amid OPEC+’s plans to ease voluntary supply curbs. Oil has jumped since the start of October as Iran launched missile strikes on Israel in retaliation for devastating attacks in Lebanon that almost wiped out the leadership of Hezbollah. This has attracted a quick jump in speculation and if the conflict in the Middle East doesn’t impact crude supplies, the market could continue lower from here. We believe lower Energy prices relative to 2022 have been a key support for resilient domestic services and overall western world consumption.
We looked back, now we look forward. Here are some things to note and how we are generally set up across strategies:
· Some $38.7 billion was added to money-market funds in the week ending Oct. 2, according to the latest Investment Company Institute data released on Thursday. The increase puts total assets at a record $6.46 trillion, capping the biggest quarter of inflows since the March 2023 banking crisis1, when the collapse of Silicon Valley Bank and other lenders supercharged flows into cash as the Fed raised rates. We feel that this could provide additional fuel to the upside in stocks if the economy remains stable and/or expands globally.
· In July 2012 Mario Draghi said “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” We are potentially seeing a somewhat similar moment in China. President Xi Jinping appeared unfazed by slowing growth as stocks sank, prices fell, and discontent grew around China. This week showed he’s not willing to tolerate any more pain. The People’s Bank of China led the charge to revive sentiment on Tuesday in a rare televised press briefing beamed live around the world, opening its war chest to stock markets and making money cheaper to borrow. The next day it kept the positive news flowing by lowering the interest rate on its one-year loans to lenders by the most on record, while the government issued rare cash handouts and floated new subsidies for some jobless graduates. The Shanghai Composite Index more than doubled from September 2014 through its June 12, 2015, peak. Then the equity gauge plunged 40% in about two months.1 We will be closely watching this dynamic as a sustained pick up in the Chinese economy would create various global investing opportunities.
· In the world’s biggest bond market, the yield on two-year notes — which is most sensitive to the Fed’s policy — has plunged 1.47% from the year’s peak of 5.04% in late April. Further out on the curve, the 10-year yield has declined about 0.95% since late April to roughly 3.75% to end Q3, near its 2024 low.1 In our opinion, the market is perhaps overly aggressive in its expectations of near term rate cuts. If the economy remains firm or strengthens this could cause longer duration rates to rise causing losses in the principal value of longer duration bonds. We remain largely exposed to short duration fixed income as a result.
As always, we appreciate each and every one of you! We love what we get to do every day and have fun doing it. If you would like to discuss any of this in greater detail, we’re always available…just reach out!
[1] Source: Bloomberg – 9/30/2024
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