Week in Review: October 11, 2024

October 15, 2024

Recap & Commentary

Markets ended the week with the S&P 500 at a new record high while notching its fifth consecutive weekly gain, the longest such streak since May. Inflation, the release of the minutes from the Fed’s September FOMC meeting, and the unofficial start of earnings season vied for investors’ attention, as did concerns about increased fighting in the Middle East.

The minutes from the Fed’s September meeting reinforced the fact that officials are generally comfortable with the overall trajectory of inflation, with most believing it is “moving sustainably toward 2 percent.” Regarding employment,  though labor market conditions remain “solid”, officials “agreed that labor market indicators merited close monitoring,” with some “noting that as conditions in the labor market have eased, the risk had increased that continued easing could transition to a more serious deterioration.”

The 10-Year Treasury yield closed the week at its highest level since July, having risen ~0.35% since the Fed cut rates in mid-September. The somewhat counterintuitive move is the result several factors including Fed Chair Powell making it clear he does not expect additional 0.50% cuts in the near-term and the idea the Fed might consider skipping cuts at upcoming meetings should economic data remain resilient, e.g. September’s strong jobs report. In addition, at the margin, some economists believe the Fed’s recent 0.50% rate cut was unnecessarily aggressive and could make the fight against inflation more difficult. Also, given that longer-term interest rates reflect expectations of future growth and inflation, the rise may be due in part to the upcoming Presidential election, as both candidates have proposed policies that would further increase the national debt.

Economic Commentary

Headline consumer inflation (CPI) rose 0.2% in September, the same pace recorded in August and 0.1% faster than expected. Compared to a year ago, inflation rose 2.4%, 0.1% faster than expected but down 0.1% from August’s 2.5% pace. Core CPI, excluding volatile food and energy prices, rose 0.3% in the month and 3.3% from a year ago. Both figures were 0.1% faster than expected.  The slightly faster pace of inflation won’t fully reignite concerns about inflation or challenge the Fed’s rationale for its 0.50% rate cut in September. However, additional reports showing a stalling in inflation’s progress back to 2% could, at a minimum, complicate the Fed’s current desire to support labor markets.

Headline producer inflation (PPI) was flat in September after rising 0.2% in August. Compared to a year ago, producer prices rose 1.8%, slightly slower than August’s 1.9% pace. Core PPI, excluding food and energy prices. rose 0.2% for the month and 2.8% from a year ago.

Consumer sentiment missed expectations due a deterioration in consumers’ views on both current and future economic conditions. Notably, one-year inflation expectations increased 0.2% to 2.9%, something the Fed will no doubt notice, given it has stated that inflation expectations factor into its policy decisions. Five-year expectations, however, declined 0.1% to 3.0%.

Of Note

The S&P 500 surpassed $50 trillion in market value for the first time.  For comparison’s sake, the index was valued at $8 trillion at the end of 2008, $27 trillion at the end of 2019, and $40 trillion at the end of 2023.

Market Indices   (As of 10/11/2024)

• Retail Sales
• Housing Starts
• Industrial Production
• Weekly Jobless Claims