Week in Review: November 1, 2024

November 4, 2024

Recap & Commentary

Markets ended the week lower as they digested a busy economic calendar, numerous earnings reports, a further rise in long-term interest rates, and looked ahead to this week’s Fed FOMC meeting.

Concerns about slowing labor market conditions was one of the primary catalysts for the Fed cutting interest rates by 0.50% at its September meeting.  The unexpectedly strong September employment report released two weeks later helped assuage some of those concerns and shift market expectations regarding future Fed rate cuts. Markets were anxious then to see whether October’s employment report would confirm the improvements seen in September, or resume the weakness seen during the summer. Unfortunately, the report was significantly impacted by Hurricanes Milton and Helene as well as data collection issues, meaning investors will have to rely on other employment data until the November employment report is available, to try to decipher the state of the labor markets.

Yields continued to move higher with the 10-Year Treasury yield reaching its highest level since the start of July, thanks to generally upbeat economic data and a renewed focus on the national debt given both Presidential candidates have put forth proposals that would continue deficit spending.

Through Friday, 70% of S&P 500 companies had reported 3Q24 earnings. Thus far, 75% have beaten their earnings estimate, while 60% have beaten their revenue estimate. According to industry group FactSet, consolidated earnings growth for the quarter is expected to be 5.1%.

Economic Commentary

Nonfarm payrolls added 12K jobs in October, significantly below the expected increase of 106K and September’s 223K level, marking the slowest pace of job growth since December 2020. The data was impacted by Hurricanes Helene and Milton, as well as the length of the data collection period which came in at the low end of the typical range of 10-16 days. Unemployment remained steady at 4.1%, while average hourly earnings rose from 3.9% to 4.0%.

Third quarter GDP grew at an annualized pace of 2.8%, slightly less than second quarter’s 3.0% pace. Importantly, growth was driven by consumer spending which rose 3.7%, its fastest pace since 1Q23.  Spending on goods was particularly strong, increasing 6.0%, while services spending was a more modest 2.6%. The overall pace of growth, and in particular the strength of consumer spending, suggests the economy entered 4Q24 with solid momentum further reducing the near-term likelihood of a recession.

According to industry group ISM, manufacturing activity contracted in October for the seventh consecutive month and at its fastest pace since July 2023. The reading reaffirmed the overall weakness in demand for manufactured goods.

The core personal consumption expenditures (PCE) index, the Fed’s preferred inflation measure, rose 0.3% in September and 2.7% from a year ago. Should inflation show signs of slowing or stalling in its progress back to 2% in the coming months, it could impact the size and timing of future Fed rate cuts.

Of Note

According to Bespoke Investment Group, the S&P 500’s gain of ~20% in 2024, through the end of October has been the strongest rally in a presidential election year since 1936.

Market Indices   (As of 11/01/2024)

• ISM Services
• Consumer Sentiment
• Consumer Credit
• Weekly Jobless Claims