October 12, 2024 Market Update

Jim Picerno here, The Milwaukee Company’s director of analytics.  I’m filling in for Andy while he’s on vacation – he’ll be back in the office next week.

The U.S. stock market scored its fifth straight weekly advance.  The S&P 500 Index rose 1.1% for the trading week, closing at another record high on Friday, October 11th.  The latest gain lifted equities to a strong 21.9% total return for the year to date and putting the S&P 500 on track to post its second straight calendar year of rising 20%-plus.

The bond market, by contrast, suffered a fourth consecutive weekly decline, based on Vanguard Total Bond Market ETF (BND), a proxy for investment-grade corporate and government bonds.  The 0.5% weekly slide left the fund near its lowest level since mid-August.

The bond market seems to be reacting to recent signs that the economy has been more robust than previously expected.  For example, the latest nowcast of U.S. economic activity in the third quarter for the government’s upcoming GDP report indicates a strong 3.2% increase (annualized rate).  If correct, that will mark a slightly faster rate compared with Q2’s strong 3.0% rise.

The robust economic profile raises questions about how far and fast the Federal Reserve will continue to cut interest rates.  After a hefty ½-point reduction last month, Fed funds futures are currently estimating high odds that the central bank will soften the next cut to a ¼ point drop at the November 7th policy meeting.

Some analysts question whether any cut at all is likely after the release of the September report on consumer inflation on Thursday.  The news was mixed: the headline rate of inflation continued to ease, slipping to a 2.4% year-over-year rate, which is closing in on the Fed’s 2% target.  But the core pace of inflation (considered to be a superior measure of the trend) ticked up to 3.3%.

It’s unclear if the mild rebound in core’s trend is noise or a sign that inflation will remain higher than expected.  For the moment, however, the bond market appears to be pricing in higher odds for the latter.  The stock market, meanwhile, seems unconcerned and continues to anticipate growth and opportunity as the path of least resistance for the near term.

That’s all for now.   Have a great weekend.