1. The Rally Continues: S&P 500 Hits New Milestones
The U.S. stock market continued its impressive run last week, with major indices reaching new heights. The S&P 500 crossed above 5,800 for the first time, marking its 10th 1,000-point milestone of the year. This surge has pushed the index to a 21.9% year-to-date gain, the best start to a year since 1997 and the 13th best in history.
Key Takeaway: The market's resilience and continued growth suggest strong investor confidence despite various economic challenges.
2. The "Goldilocks" Economy
The current economic situation in the U.S. is being described as a "Goldilocks" moment - not too hot, not too cold, but just right. This narrative is propelling stocks higher, with the Fed easing monetary policy not out of necessity but by choice. The economy is showing robust growth, with the Atlanta Fed estimating 3.2% real GDP in Q3, while inflation and employment figures are seen as "just right."
Key Takeaway: The balance between growth, inflation, and employment is creating an ideal environment for equity markets.
3. Inflation: Progress and Persistence
Overall CPI has moved down to 2.4%, its lowest level since February 2021. Every major component in CPI has a lower rate of inflation today than in June 2022 when CPI peaked at 9.1%. However, core inflation (excluding food/energy) came in at 3.3% in September, marking the 41st consecutive month above 3% - the longest period of elevated core inflation since the early 1990s.
Key Takeaway: While progress has been made in taming inflation, persistent core inflation remains a concern for policymakers.
4. Employment Remains Strong
The latest employment report handily beat expectations, with 254,000 jobs added in September versus the 132,000 consensus. The U.S. has now seen 45 consecutive months of jobs growth. The Unemployment Rate moved down for a second straight month in September to 4.1%, well below the historical average of 5.7%.
Key Takeaway: The labor market continues to show resilience, supporting the narrative of a strong economy.
5. Fed Rate Cut Expectations Shift
Market expectations for Fed rate cuts have shifted significantly over the past month. The market is now pricing in a Fed Funds Rate of 3.4% by the end of 2025, up from 2.8% a month ago. This aligns with the Fed's latest projections, with expectations of another 50 bps in rate cuts by the end of this year and 100 bps in cuts next year.
Key Takeaway: The market has adjusted its expectations for monetary policy, now aligning more closely with the Fed's outlook.
6. Earnings Season Kicks Off
Q3 earnings season has begun, with major U.S. banks releasing positive results. As of Friday, analysts were forecasting that earnings for all companies in the S&P 500 would rise by an average of 4.1% overall. This positive start to earnings season is contributing to the market's upward momentum.
Key Takeaway: Early earnings reports are supporting the market's bullish sentiment.
7. China's Stock Market Surge
China's stock market recently experienced a parabolic move, with a 40% increase over 13 trading days. This surge was attributed to a barrage of stimulus measures from the Chinese government, including interest rate cuts and loans to boost stock prices. However, questions remain about the sustainability of this rally without fundamental growth and changes in government policies.
Key Takeaway: While the Chinese market has seen a dramatic short-term boost, long-term sustainability remains uncertain.
8. Notable Market Statistics
- The S&P 500's Dividend Yield has moved down to 1.27%, tied with Q4 2021 for the lowest yield since 2000.
- U.S. credit card interest rates have reached a record high of 21.8%.
- Interest Expense on U.S. Public Debt rose to a record $1.13 trillion over the last 12 months.
- U.S. High Yield credit spreads have tightened to 2.89%, the lowest since June 2007.
Key Takeaway: These statistics highlight both the strength of the current market and potential areas of concern in consumer debt and government financing.
Next week, we'll be closely watching the release of the U.S. retail sales report, further Q3 earnings releases, and any developments in global economic policies. Stay tuned for our continued analysis of these evolving market conditions.
