September 14, 2024 Market Update

The Federal Reserve’s meeting next week and the speculations around its rate cut decision were the primary themes driving the markets this past week.  The economic data released during the second half of the week raised investors’ expectations of a larger rate cut, propelling all major equity indexes to post significant gains for the week.

The treasury markets also responded to changing expectations with the 10-year treasury yields dropping by 6 bps over this past week.  Meanwhile, the U.S. bond market, as measured by the Vanguard Total Bond Market ETF (BND), posted a gain of 0.52%. 

As many seasoned investors know, September has a reputation for being a challenging month for the stock market.  Since 1928, the S&P 500 has averaged a 1.2% decline during this month, making it the weakest of the year.  The index has finished lower 56% of the time, according to Dow Jones Market Data.

Several factors contribute to this “September Effect.”  Institutional investors and mutual funds often engage in pre-year-end portfolio rebalancing, which can create selling pressure.  Tax-loss harvesting - where investors sell underperforming assets to offset gains - can add to the downward momentum.  There are also seasonal economic factors, such as the slowing of growth as summer ends and business activity transitions into the fourth quarter.  And September’s poor historical track record can become a self-fulfilling prophecy. 

As of Friday’s close, Vanguard’s Total Stock Market Index was down by 0.42% for the month, as hopes for a significant rate cut following next week’s Federal Reserve meeting compete with mounting concerns about a possible monetary policy mistake by the Federal Reserve.  Recent economic data and stronger than expected earnings reports suggest that the economy may be more resilient than previously anticipated, boosting investor confidence.  At the same time, concerns remain that the Fed may maintain high interest rates for too long, potentially eroding future corporate earnings and, by extension, stock prices.  

For now, The Milwaukee Company’s proprietary market and economic indicators do not suggest that a new recession or bear market are imminent.  However, market and economic conditions can change suddenly, and so we continue to closely monitor developments for signs of a more sustained shift in direction.  As always, our focus remains on managing risks to our clients’ portfolios, while looking for opportunities to boost returns when opportunities arise.

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