September Market Rally And Fed Rate Cuts: Key Insights

September 30, 2024

📈 Floor Lines - Richie Naso

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

DJIA 52-wk: +26.28% YTD: +12.27% Wkly: +0.59%
S&P 500 52-wk: +33.82% YTD: +20.30% Wky: +0.62%
NASDAQ 52-wk: +37.07% YTD: +20.71% Wkly: +0.95%
Industrial Select Sector SPDR ETF 52-wk: +32.99% YTD: +18.28% Wkly: +1.24%

WEEKLY MARKET RECAP:

September is historically the worst month for the U.S. stock market, but stocks may be poised for September’s first gain since 2019. U.S. indices were positive this week after celebrating the Fed's supersized 50 bps interest rate cut – its first in four years. Markets rallied with the S&P 500 experiencing another one of its best days of the year on Thursday, rising 23.11 points, and ending at 5,745.37. The Nasdaq added 108.09 points on Thursday, and the Dow posted its second-highest-ever close, ending at 42,175.11.

September’s consumer confidence fell on a negative view of the current labor market, sliding to 98.7 from 105.6. Dana M. Peterson, Chief Economist at The Conference Board, stated that consumers are pessimistic about the future labor market conditions and less optimistic regarding future business conditions and income.

Rate Cuts Are Here. What That Means For The Ecomony And Markets:

The most highly anticipated Fed meeting of the year took place on September 17-18, and with it came a 50-basis point rate cut—arguably the outcome the market hoped for. 11 of 12 Fed officials voted in favor of the cut, which lowered the benchmark Fed funds rate to a range between 4.75% and 5%. Projections released after the meeting signaled that the Fed could go further, cutting by 25 basis points at each of the next two meetings (scheduled for November and December).

The equity market’s response has been positive in the short term, but the financial media has not been so sure. On one hand, some pundits argue the larger rate cut is bullish because it underscores the Fed’s commitment to making a decisively dovish pivot, which should lower borrowing costs while boosting economic activity and market returns. The bears, on the other hand, argue that the Fed sees an economy in trouble, thus requiring a larger rate cut to stave off recession.

Neither camp is right, in Mitch Zacks view.

QUICK HITS:

The Invesco S&P 500 Equal Weight ETF has outperformed the Roundhill Mag Seven ETF for the last three months, a sign that investors’ interests had turned to the other 493 stocks in the index for opportunities to outperform.

This Weeks Interesting Sector Piece: October Markets

The bulls have taken charge once again.

But October, another notoriously volatile month, looms—and with it a crucial week for investors and the Fed. A slew of jobs numbers, including the Job Openings and Labor Turnover Survey (Jolts), ADP’s report on private-sector jobs growth, weekly jobless claims, and the September nonfarm payrolls jobs report are all due out, as are the latest Institute for Supply Management manufacturing and services surveys.

The payrolls report is most likely to move markets. Economists forecast a slight decrease in job gains for September, to 140,000, compared with 142,000 in August. Investors are hoping to see slightly cooler numbers, which would justify further rate cuts from the Fed. If the numbers disappoint too much, alarm bells could start to sound about a rapidly weakening economy, putting a damper on Wall Street’s currently chipper mood.

“We don’t expect a recession in the next 12 months. But the problem is now that’s the consensus view,” says Sébastien Page, chief investment officer at T. Rowe Price. “The market is pricing in a soft landing...if not something better.” Is it ever. The S&P 500 is now trading at 21 times earnings estimates for 2025, above its five-year average forward price/earnings ratio of 19 and inching closer to its high of 23. With that in mind, Page told Barron’s that investors need to be selective about what and when they buy, particularly heading into an increasingly uncertain presidential election. He also thinks the recent broadening out of the rally will continue as earnings growth improves for more cyclical companies outside of tech and the Magnificent Seven. He likes the industrial, healthcare, and energy sectors.

CLOSING REMARKS:

I’m focusing on four factors this week that in my opinion should determine the near-term direction of the market.

1) This week’s numerous jobs data reports

2) The IWM Index

3) The financial sectors KRE & XLF ETF’S

4) The price action in NVDIA around the important 120 technical area

References

DATA: Barron’s print edition page 28 9/30/24 Market Week Paul La Monica

Paragraph one & two: Seeking Alpha online edition 9/27/24 Alpha Picks Seeking Alpha

Paragraph three: Zacks online edition 9/28/24 Mitch on the Markets Mitch Zacks

Paragraph four: Barron’s print edition page 6 9/30/24 Up & Down Wall Street Ben Levisohn

Paragraph five: Barron’s print edition page 28 9/30/24 What Could Kill Off This Latest Market Rally. Paul La, Monica

Paragraph six: Closing comments are just my observations

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