Weekly Market Update – October 18, 2024

Quick Takes

• The U.S. stock market concluded its sixth straight week of gains, with the S&P 500 closing at a record high. The S&P 500 Index rose +0.9% for the week, setting its 47th record close of the year.
• Last week’s advance was driven by a combination of solid earnings reports, robust retail sales, and continued hopes that the Federal Reserve can deliver a soft landing. A broadening of the market also helped as small cap stocks led the week with a +1.9% gain.
• U.S. Bonds were little changed, inching up +0.05% for the week, but non-U.S. bonds performed better, gaining +0.34%. They were helped by rate cuts from the European Central Bank and the Bank of England.

Source: Bloomberg. Data as of October 18, 2024.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Stocks extend win streak to six weeks, bonds little changed

The U.S. stock market concluded its sixth-straight week of gains, with the S&P 500 closing at a record high. The S&P 500 Index rose +0.9% for the week, setting its 47th record close of the year. The Nasdaq Composite Index gained +0.8% for the week but is still -0.8% below its July 10 all-time high. However, it was small cap stocks that led the week as the Russell 2000 Index increased +1.9% over the week. Last week’s advance was driven by a combination of solid earnings reports, robust retail sales, and continued hopes that the Federal Reserve can deliver a soft landing. The Financials sector continued to advance after Morgan Stanley joined peers JPMorgan, Bank of America, and Goldman Sachs in delivering earnings results that exceeded Wall Street expectations and demonstrated a rebound in investment banking. 

Despite getting rate cuts from the European Central Bank (ECB) and the Bank of England (BoE), developed market international stocks (as measured by the MSCI EAFE Index) slipped -0.4% for the week, as did emerging market stocks (the MSCI Emerging Markets Index). WTI crude oil dropped -8.4% over the week hurting many emerging countries that rely on petroleum exports. The U.S. dollar was also up slightly, gaining +0.6%, which is a headwind for non-U.S. assets.

Treasury rates in the bond market retreated slightly over the week, with the yield on the benchmark 10-year U.S. Treasury note ending -2 basis points higher, following the prior week’s +13 basis point increase, putting the yield at 4.08%. The shorter 2-year U.S. Treasury yield also slipped -2 basis points to close at 3.94%. Bond prices and yields move in opposite directions, and the Bloomberg U.S. Aggregate Bond Index inched up +0.1%, and non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, were up +0.3%, aided by ECB and BoE rate cuts. 

Chart of the Week

The Commerce Department reported that U.S. Retail Sales were up +0.4% in September, ahead of expectations for a +0.3% increase and up from the unrevised +0.1% increase the prior month. Retail sales represent about one-third of all consumer spending and offer clues on the strength of the economy. Sales were healthy despite a drop in gasoline stations and flat automobile sales. Sales ex-autos and gas were up +0.7%, up from the prior month’s +0.3% rise (revised up from +0.2%), which is also what Wall Street expected. The Control Group, a figure used to calculate GDP, was up +0.7%, well ahead of expectations of +0.3%, which is where it was the prior month.

Retail Sales Post Solid Gain in September

U.S. Retail Sales (month-over-month % change)

Source: U.S. Census Bureau, Trading Economics.

Economic Review

• September Housing Starts dipped -0.5% to seasonally adjusted annual rate of 1,354,000 units, below expectations for a -0.4% dip to 1,350,000 units and compares to an upwardly revised 1,361,000 units, or +7.8% rise, the prior month (originally 1,356,000 and +7.6%). Housing starts peaked at 1,800,000 million in April 2022. Single-family homes rose +2.7% in the month, while multi-family units fell -4.5%. New construction was up +10.6% in the Northeast, +6.6% in the South, down -2.3% in the West, and down -10.4% in the Midwest. Meanwhile, Building Permits, one of the leading indicators tracked by the Conference Board, fell -2.9% to 1,428,000, following the prior month’s +4.6% rise to 1,470,000 (revised down from +4.9%). That was much worse than the expected -0.7% dip to 1,460,000. Single-unit permits were up +0.3%, while multi-unit permits for buildings dropped -10.8%. Regionally, permits jumped +11.2% in the West, were up +5.7% in the Midwest, but fell -6.2% in the Northeast and -4.0% up in the South.
• Homebuilder confidence rose in October from its lowest level since December, according to the National Association of Home Builders (NAHB) Housing Market Index (HMI), which rose to 43 from an unrevised 41 the prior month. That was just above expectations for 42. A year ago, the index stood at 40. The index is based on a 0-to-100 scale, where any number over 50 indicates a good reading, and below 50 is considered negative sentiment. The Current Sales component was up +2 points to 48, Future Sales (in the next six months) rose +2 points to 55, and Traffic of Prospective Buyers increased +4 points to 31. The improvement across the board should be assisted going forward as the Fed begins a rate cutting cycle. For the month, 33% of builders reported cutting home prices, unchanged from the prior month. The average price reduction slid to 6% from 5% the prior month, where it had been for over a year. The use of sales incentives beyond price cuts ticked up to 62% from 61%.
• Imports Prices fell -0.4% in September, more than the expected -0.3% decline and more than the prior month’s -0.2% decrease (revised up from -0.3%). Lower gasoline prices were largely responsible for the negative print, as import prices ex-petroleum were up +0.2%, up from a flat reading the prior month, revised up from -0.1%. Year-over-year, the cost of imports was down a modest -0.1%, a sharp deceleration from the unrevised +0.8% annual rate the prior month. Export Prices fell -0.7%, below expectations of -0.4%, but up from the prior month’s -0.9% (revised down from -0.7%). Export prices slid -2.1% over the past year, far below expectations for a -0.9% rise which is where it was the prior month (revised down from the originally reported -0.7%).
• U.S. Industrial Production fell to -0.3% in September from +0.3% the prior month (revised lower from +0.8%). That was below expectations for -0.2%. Manufacturing was down -0.4%, the third decline in the last four months. The strike at Boeing and by the two recent hurricanes hampered activity by an estimated -0.6%. Motor vehicles and parts output fell -1.5% after jumping +9.9%. Capacity Utilization, a measure of potential output, slipped to 77.5% from 77.8%, where it was expected to stay. Capacity Utilization reflects how much a manufacturing plant is being used to produce things.
• The New York Fed’s Empire State Manufacturing Index, a gauge of manufacturing activity in the state, slumped to -11.9 in October from +11.5 the prior month, the weakest reading since May. That was sharply below expectations for a +3.6 level (reading below zero indicates deteriorating economic conditions). New Orders fell to -10.2 from +9.4. Shipments fell to -2.7 from +17.9. Labor-market conditions improved, with Number of Employees increasing to +4.1 from -5.7 and Average Workweek rising to +4.7 from +2.9. The Prices Paid index jumped to 29.0 from 23.2, while the Prices Received component rose to +10.8 from +7.4. Expectations for six months ahead improved to +38.7 from +30.6, the highest level since November 2021.
• Manufacturing in the Federal Reserve’s Third District rose to +10.3 in October after a +1.7 rise the prior month, according to the Philly Fed Manufacturing Business Outlook Survey. That was well above expectations for +3.0 (readings above zero indicates economic expansion). However, New Orders rose to +14.2 from -1.5 the month before. The Shipments component jumped to +7.4 from -14.3. The Employment index reversed down to -2.2 from +10.7. The Six-Month Business Outlook jumped up to +36.7 from +15.8. The Prices Paid index slipped to 29.7 from 34.0.
• Weekly MBA Mortgage Applications fell sharply for the week ending October 11, plunging -17.0% following the prior week’s -5.1% drop. The Purchase Index fell -7.2% following a -0.1% dip the prior week. The Refinance Index plummeted -26.3%, following the prior week’s -9.3% drop. The average 30-Year Mortgage Rate rose to 6.52% from 6.36% the prior week, the third straight week of increases.
• Weekly Initial Jobless Claims retreated -19,000 to 241,000 for the week ending October 5, far below expectations for 259,000. The prior week was revised higher to 260,000 from 258,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose +9,000 to 1,867,000 in the week ending Oct 4, above expectations for 1,865,000. Last week’s reading of 1,861,000 was revised down to 1,858,000.

The Week Ahead

After a couple slow weeks, the economic calendar picks up this week. The Conference Board releases its Leading Economic Index (LEI) on Monday. Housing data is prevalent with weekly Mortgage Applications and Existing Home Sales on Wednesday as well as New Home Sales on Thursday. Wednesday afternoon also brings the release of the Fed’s Beige Book. Thursday is the busiest day, in addition to New Home Sales, we get the Chicago Fed National Activity Index and the S&P Global U.S. PMIs flash release for October. Friday brings a look at Durable Goods and Consumer Sentiment. The week will also see the Richmond and Kansas City regional Fed reports on Tuesday and Thursday, respectively.  

The earnings season becomes a deluge this week, with about 20% of the S&P 500 companies announcing profits. Nucor and SAP report earnings on Monday, followed by 3M, General Motors, Lockheed Martin, and Verizon Communications on Tuesday. On Wednesday, AT&T, Coca-Cola, Newmont, NextEra Energy, Tesla, and T-Mobile release their quarterly results. 

Then, on Thursday, we get Honeywell International, Southwest Airlines, United Parcel Service, and Western Digital, while Colgate-Palmolive, HCA Healthcare, and Sanofi close the week on Friday. 

Did You Know?

EASY MONEY – The Chicago Fed’s National Financial Conditions Index for the U.S. reached the ‘loosest’ levels since November 2021 in the week ending 10/4. Of the 105 indicators that go into the index, 101 showed looser than average financial conditions, the most since January 28, 2022 (Source: Chicago Federal Reserve).

GROCERY PRICES BACK UP – U.S. inflation (CPI, Consumer Price Index) came in higher than expected in September, and grocery prices were a meaningful contributor. The Food at Home category increased +0.4% month over month in September, led by an +8.4% jump in the price of eggs, a +3.3% jump in salad dressing, and a +2.8% jump in butter. Jewelry and watches also saw a record +5.2% monthly price jump, while sporting event ticket prices surged +10.9% (Source: BLS)

COST OF AMERICAN DREAM – The “American Dream” includes milestones like having a car, getting married, buying a house, raising and educating kids, having pets, and going on vacation once a year. Combined, these milestones have an average lifetime cost of $4.4 million, or +57% more than the $2.8 million that the average bachelor’s degree holder will earn over their career (Source: Investopedia, MFS).

This Week in History

ROOSEVELT ROUT – On October 18, 1937, the stock market tumbled on rumors that the Roosevelt administration was planning a crackdown on Wall Street. The Dow Jones Industrial Average lost over -7%, a major dip in the middle of the Great Depression  (Source: The Wall Street Journal).

Asset Class Performance

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.