October 5, 2024 Market Update

Jim Picerno here, The Milwaukee Company’s director of analytics.  I’m filling in for Andy while he’s on vacation.

The U.S. stock market traded in a tight range for the trading week through Friday, October 4th.  The S&P 500 Index edged up fractionally, holding near the record high set late last month, while the tech-heavy Nasdaq composite also ticked higher on the week.

The bond market, by contrast, fell sharply, based on Vanguard Total Bond Market ETF (BND), a proxy for investment-grade corporate and government bonds.  The 1.2% weekly decline left the fund at its lowest level since August 30th.  Most of BND’s slide unfolded on Friday, following news that U.S. payrolls rebounded sharply in September: the 254,000 rise was well above economists’ expectations for the labor market’s performance.

The robust pace of hiring last month – the strongest monthly advance since March -- is another sign that the economy remains resilient.  The news also suggests that the rally in the bond market over the last several months may have gone too far too fast.  Investors poured money in Treasuries on the assumption that the economy was stumbling.  Some analysts had been forecasting that a recession was imminent – forecasts that now look premature, to say the least, in the wake of the upbeat data on payrolls.

Several other indicators also paint an encouraging profile of economic conditions.  The ISM Services Index, for example, rose to a 1-1/2 year high in September, surpassing consensus estimates driven by strong growth in new orders.

The renewed sense that the economic expansion will continue for the near term persuaded traders that the Federal Reserve will likely adjust its plans for interest-rate cuts.  After reducing its target rate by 50 basis points last month, Fed funds futures are now pricing in high odds that the central bank at the November 7th policy meeting will reduce rates by 25 basis points rather than 50, which was the outlook a week ago.

Speaking of interest rates, next week’s consumer inflation report will be widely read for clues on whether the case for any additional rate cuts is premature.

Elsewhere, the conflict between Israel, Hezbollah (the militia based in Lebanon), and Iran poses heightened risks to global markets.  The potential for broader geopolitical instability that can disrupt oil supplies remains a major risk factor, although the market reaction has been relatively muted so far.

That’s all for now.  Have a great weekend and invest wisely.