Week in Review: September 27, 2024

September 30, 2024

Recap & Commentary

Markets ended the week modestly higher with the S&P 500 and Dow Jones Industrial Average setting new record highs following a deluge of economic data reports, comments from multiple Fed officials providing further insight into the Fed’s decision to cut interest rates by 0.50% the prior week, and the unveiling of China’s largest stimulus plan since Covid.

No fewer than five FOMC members shared their thoughts on monetary policy. All of them said they expect the Fed to continue cutting rates in the months ahead, though there were differing opinions on how aggressive the Fed would be. Minneapolis Fed President Neal Kashkari said that after a more aggressive first rate cut of 0.50%, he now expects the Fed to “probably take smaller steps unless the data changes materially.” However, Atlanta Fed President Raphael Bostic suggested the Fed might need to remain more aggressive. Given the “Progress on inflation and the cooling of the labor market,” he now expects the Fed to normalize monetary policy “sooner” than he previously thought. The differing viewpoints highlighted the challenge Fed official face in striking the right balance between monetary policy and economic activity.

In China, officials unveiled the largest stimulus plan since Covid. The measures which included, cutting bank reserve requirements and interest rates, relaxing home buying restrictions, and subsidies for consumer spending, are designed to jump start the country’s sluggish economy. The measures were well received by the markets, but some economist believe they will fail to produce the desired results as the current economic weakness is more attributable to consumers and business paying down debt, than the availability of credit.

Economic Commentary

The core personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge rose 0.1% in the month of August and 2.7% from a year ago.  The readings suggested that inflation continues to moderate towards the Fed’s longer-term target of 2%.

Data released by industry group S&P Global showed a further contraction in US manufacturing activity in September while the services sector continued to expand, albeit at a slightly slower pace than in August. Manufacturing new orders fell to a 21-month low pointing to continued tepid demand.

New home sales slid 4.7% from July to August but rose 9.8% from a year ago. The median sales price, declined from $429K to $420.6K. At the same time, the supply of new homes rose 6.8% from July to August, reaching its highest level since 2009. Building permits, a forward-looking indicator of future building activity rose 4.6% for the month to an annualized pace of 1.47M.

Durable goods orders were flat in August but a more nuanced reading on business spending rose 0.2% after declining 0.2% in July.

Consumer sentiment modestly exceeded expectations, aided by improvements in consumers’ views of both current and future economic conditions. One- and five-year inflation expectation remained unchanged at 2.7% and 3.1%, respectively.

Of Note

Congress avoided a government shutdown by passing a short-term spending bill to fund the government through December 20. Without the bill the government would have shut down on October 1.

Market Indices   (As of 09/27/2024)

• Sept. Employment Report
• ISM Manufacturing
• ISM Services
• JOLTs Job Openings
• Weekly Jobless Claims