US Markets
Investors welcomed the Fed’s decision regarding short-term interest rates, causing stocks to post solid gains in the third quarter.
The Dow Jones Industrial Average, which dipped in Q2, picked up 8.21% for the third quarter. The S&P 500 Index rose 5.53% while the tech-heavy Nasdaq Composite gained 2.57% as investors rotated away from technology names in favour of other groups (See Sector Scorecard).1
Small Caps Shine In July
Stocks were mixed in July despite economic data that seemed to mark a turning point in the Fed’s view on interest rates. Investors eventually became more confident that inflation was slowing as anticipation built around a potential rate adjustment.2
The improving inflation outlook sparked a rally in the Russell 2000, which gained more than 10% in July. Investors anticipated small caps might benefit if the Fed adjusted rates.3,4
Twin Inflation Reports in August
August began with a disappointing employment report showing that job growth in July slowed more than expected, and unemployment increased to 4.3%—the highest rate since October 2021. On the same day, Japan’s Nikkei dropped on concerns about a trading strategy called a “carry trade,” which briefly pressured global financial markets.5,6
But stocks rebounded mid-month as fresh economic data also bolstered confidence. The Producer Price Index (PPI) and the Consumer Price Index (CPI) rose less than expected in July, reinforcing the “cooling inflation” narrative. The July retail sales report was stronger than expected, which also helped boost sentiment.7
Later in the month, Fed Chair Jerome Powell, in his Jackson Hole symposium speech, indicated the time had come to adjust monetary policy, which was considered welcome news by investors.8
The Fed’s Bold Move in September
In September, markets were volatile as investors waited for an update on interest rates following the Fed’s two-day meeting. Early in the month, weak manufacturing data and mixed jobs data reawakened recessionary fears, which put pressure on stocks and led to the S&P 500 posting its worst week since March 2023.9,10,11
Stocks initially fell when the Fed announced it was cutting interest rates by 0.5%—the first reduction in four years—but then rallied. The Dow topped 42,000 for the first time, while the S&P crossed the 5,700 mark. The 0.5% cut surprised some, who anticipated the Fed would be more cautious during an election year.12,13
What Investors May Be Talking About in October
In the month ahead, expect some attention to start shifting to the housing market now that Fed Chair Powell has confirmed that “the time has come for (monetary) policy to adjust.”
Mortgage rates have been trending lower since hitting a peak in October 2023. Loan rates may continue to move lower since Powell said that “the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”15
There is a group of existing homeowners who may have delayed mortgage decisions in recent years because they don’t want to leave a low-interest rate home loan. If mortgage rates trend lower, some homeowners may reach a higher level of comfort making a move.
World Markets
The MSCI EAFE Index rose 6.65% during Q3, benefiting from easing monetary policy in many central banks.16
European stocks rallied in Q3, with Spain (+8.53%) and Germany (+5.97%) notching solid gains. France, the UK, and Italy rose, but the gains were modest.17
Among emerging markets, Egypt rose 14.77%, and Brazil picked up 6.38%. On the Pacific Rim, China’s Hang Seng index rose 19.27%, which led the group. Other markets were mixed, with Australia picking up 6.47% while Japan’s Nikkei slipped 2.35%.18,19
The Fed
The Federal Reserve cut interest rates by a half percentage point at its September 17–18 Federal Open Market Committee (FOMC) meeting, bringing the Fed Funds target range to 4.75% to 5.0%. It was the first change in the Fed Funds in 14 months and the first cut in short-term rates in 4½ years.
A majority of FOMC voting members also indicated that rates may adjust at the two remaining Committee meetings in 2024. Still, Fed Chair Powell, following the meeting, told the National Association for Business Economics that “we are not on any preset course.”29
The Fed’s September decision reflected “greater confidence that inflation is moving sustainably toward 2%” and that the “risks to achieving its employment and inflation goals are roughly in balance.”30
Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
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1. WSJ.com, September 30, 2024
2. WSJ.com, July 31, 2024
3. WSJ.com, July 31, 2024
4. WSJ.com, July 31, 2024
5. NBCNew.com, August 2, 2024
6. CNBC.com, August 5, 2024
7. WSJ.com, August 14, 2024
8. Reuters.com, August 23, 2024
9. WSJ.com, September 3, 2024
10. WSJ.com, September 6, 2024
11. WSJ.com, September 11, 2024
12. WSJ.com, September 19, 2024
13. CNN.com, September 20, 2024
14. SectorSPDRS.com, September 30, 2024
15. Forbes.com, September 30, 2024
16. MSCI.com, September 30, 2024
17. MSCI.com, September 30, 2024
18. MSCI.com, September 30, 2024
19. MSCI.com, September 30, 2024
20. Finance.Yahoo.com, September 26, 2024
21. WSJ.com, September 6, 2024
22. MarketWatch.com, September 17, 2024
23. KPMG.com, September 17, 2024
24. Reuters.com, September 18, 2024
25. Realtor.com, September 19, 2024
26. Zillow.com, September 25, 2024
27. WSJ.com, September 11, 2024
28. KPMG.com, September 26, 2024
29. CNBC.com, September 30, 2024
30. WSJ.com, September 18, 2024
31. Statista.com, 2024
32. SmithsonianMag.com, October 11, 2023
33. GuinnessWorldRecords.com, 2024
34. Parade.com, June 7, 2024
35. Statista.com, 2024
36. WebMD.com, 2024
37. PlantPerfect.com, October 17, 2022
38. USA.gov, 2024
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