QUARTERLY MARKET REVIEW: JULY-SEPTEMBER 2024

The Markets (as of market close August 30, 2024)

Stocks closed mostly higher in August, buoyed by a strong close to the month. Favorable inflation data and economic reports helped drive stocks higher toward the end of the month as investors took heed of Federal Reserve Chair Jerome Powell's statement that it is approaching time to lower interest rates. The Global Dow led the benchmark indexes, with the S&P 500, the Dow, and the NASDAQ all ending the month higher. The Russell 2000 wasn't able to keep pace as it closed the month lower. Despite the strong finish, stocks rode a bumpy ride, falling lower mid-month as investors worried that the economy was slowing, and the Fed didn't react in time to stem the negative tide. However, as more favorable economic reports emerged and the Fed seemed ready to ease its restrictive monetary policy, investors were ready to jump back into the market. Among the market sectors, only consumer discretionary and energy declined, while real estate and consumer staples advanced the most.

Inflationary data showed price pressures continued to stabilize in July. The 12-month interest rates for the Consumer Price Index (CPI) and the personal consumption expenditures (PCE) price index each came in at 2.9%, as they inched closer to the Federal Reserve's 2.0% target range. Since 2018, the annual inflation rate has dropped notably from a high of 6.2% in October 2021. Prices for commodities that are prevalent for most households, such as food at home, gasoline, new and used motor vehicles, and apparel, changed very little over the year. Shelter costs were up 0.4% in July and up 5.1% compared to July 2023. Shelter costs are decelerating only slowly and still a significant contributor to upward price pressure on services.

Growth of the U.S. economy continued at a modest pace, despite the Fed's restrictive monetary policy. The gross domestic product (GDP) met expectations after increasing 3.0% in the second quarter following a 1.4% increase in the first quarter (see below). Consumer spending, the largest contributor in the calculation of GDP, rose 2.9%, with spending rising in durable goods, nondurable goods, and services. Gross domestic income, another indicator of the health of the economy, rose 1.3% in the second quarter. Moderate economic growth should be another plus as the Fed weighs its current monetary policy.

Job growth continued to slow in July, falling short of expectations. Downward revisions to estimates for June and May clearly show that average monthly gains in the second quarter of the year (177,000) are well below the average gains in the first quarter (267,000). Wage growth declined 0.3 percentage point over the past 12 months. New weekly unemployment claims decreased from a year ago, while total claims paid increased (see below).

Nearing the end of Q2 corporate earnings season, S&P 500 companies are reporting mixed results. About 91% of the S&P 500 companies have reported results. Of those companies, 78% reported earnings per share (EPS) above estimates, which is in line with the five-year average of 77% and higher than the 10-year average of 74%. Overall, as of August 12, the index reported an aggregate earnings growth rate of 3.5%, which is below the 5-year average of 8.6% and below the 10-year average of 6.8%. In general, the market has rewarded companies that reported positive earnings surprises with price increases, while companies that fell short of earnings expectations have generally seen their stock values dip.

Sales of both existing homes and new homes rose in July (see below). While home sales remain a bit sluggish, buyers are seeing more choices partly due to more inventory and slightly lower mortgage rates. Higher mortgage rates have slowed sales, with inventory expanding and the sales process lengthening. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.49% as of August 15, up from 6.47% one week ago, but down from 7.09% from one year ago.

Industrial production retracted in July from June, which saw a 0.3 percentage point revision lower. Manufacturing output decreased in July and was 0.1% above its year-earlier level. Within manufacturing, durables manufacturing declined 0.9% but nondurables rose 0.4%. In July, the manufacturing sector retracted in for the first time in seven months, while the services sector saw a notable expansion of business activity.

Bond yields fell as bond prices increased in August. Ten-year Treasury yields generally closed the month lower. The two-year Treasury yield dropped 3.7 basis points to about 3.93% on the last trading day of August. The dollar weakened against a basket of world currencies, driven lower by the anticipated interest rate cuts later in the year. Gold prices hit a record high of $2,535.30 to close out August. Crude oil prices declined, as investors anticipated a supply increase by OPEC+ in October and decreased demand in China. Gasoline prices hit an eight-month low, as the retail price of regular gasoline was $3.313 per gallon on August 26, $0.158 below the price a month earlier and $0.500 less than the price a year ago.

Stock Market Indexes

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Latest Economic Reports

Key Dates/Data Releases

10/1: S&P Global Manufacturing PMI, JOLTS

10/3: S&P Global Services PMI

10/4: Employment situation

10/8: International trade in goods and services

10/10: Consumer Price Index, Treasury budget statement

10/11: Producer Price Index

10/16: Import and export prices

10/17: Retail sales, industrial production

10/18: Housing starts

10/23: Existing home sales

10/24: New home sales

10/29: Durable goods orders, International trade in goods, JOLTS

10/30: GDP

10/31: Personal income and outlays

• Employment: Total employment increased by 142,000 in August, below the consensus of 160,000 and lower than the 12-month average gain of 202,000. The August estimate followed downward revisions in both June and July, which, combined, were 86,000 lower than previously reported. In August, job gains occurred in construction and health care. The unemployment rate for August ticked down 0.1 percentage point to 4.2% but was 0.4 percentage point above the rate from a year earlier (3.8%). The number of unemployed persons dipped by 48,000 to 7.1 million (6.3 million in August 2023). In August, the number of long-term unemployed (those jobless for 27 weeks or more) was unchanged at 1.5 million and accounted for 21.3% of all unemployed people. Both the labor force participation rate, at 62.7%, and the employment-population ratio, at 60.0%, did not change from the previous month. In August, average hourly earnings increased by $0.14, or 0.4%, to $35.21. Since August 2023, average hourly earnings rose by 3.8%. The average workweek edged up 0.1 hour to 34.3 hours.
• There were 218,000 initial claims for unemployment insurance for the week ended September 21, 2024. During the same period, the total number of workers receiving unemployment insurance was 1,834,000. A year ago, there were 213,000 initial claims, while the total number of workers receiving unemployment insurance was 1,795,000.
• There were 231,000 initial claims for unemployment insurance for the week ended August 24, 2024. During the same period, the total number of workers receiving unemployment insurance was 1,868,000. A year ago, there were 234,000 initial claims, while the total number of workers receiving unemployment insurance was 1,859,000.
• FOMC/interest rates: The Federal Open Market Committee cut the federal funds target rate range by 50.0 basis points to 4.75%-5.00% following its September meeting. This was the first rate reduction in four years. The statement released by the Committee noted that it had achieved the greater confidence it sought on the path of disinflation, as the risks to the dual mandate of maximum employment and price stability were "roughly in balance."
• GDP/budget: According to the third and final estimate from the Bureau of Economic Analysis, the economy, as measured by gross domestic product, accelerated at an annualized rate of 3.0% in the third quarter of 2024. GDP increased 1.6% in the first quarter. Personal consumption expenditures rose 2.8% in the second quarter compared to a 1.5% increase in the previous quarter. Consumer spending on goods increased 3.0%, while spending on services rose 2.7%. Personal consumption expenditures (1.90%) contributed the most to overall economic growth. Gross domestic investment advanced 8.3% in the second quarter, well above the 3.6% increase in the first quarter. Nonresidential (business) fixed investment advanced 3.9% in the second quarter (4.4% in the first quarter), while residential fixed investment declined 2.8%, compared to a 13.7% increase in the first quarter. Exports climbed 1.0%, while imports, which are a negative in the calculation of GDP, increased 7.6%. Consumer prices, as measured by the personal consumption expenditures price index, increased 2.5%, compared with an increase of 3.4% in the first quarter. Excluding food and energy prices, the PCE price index increased 2.8%, compared with an increase of 3.7% in the prior quarter.
• The federal budget deficit in August was $380.0 billion following July's deficit of $244.0 billion. In August, government receipts totaled $307.0 billion, while government outlays were $687.0 billion. Through 11 months of fiscal year 2024, the total deficit sits at $1,900.0 trillion, which is roughly $400.0 billion more than the deficit through the first 11 months of the previous fiscal year.
• The federal budget deficit in July was $244.0 billion following June's deficit of $71.0 billion. In July, government receipts totaled $330.0 billion, while government outlays were $574.0 billion. Through the first 10 months of fiscal year 2024, the total deficit sits at $1,517.0 trillion, which is roughly $357.0 billion lower than the deficit through the first 10 months of the previous fiscal year.
• Inflation/consumer spending: The PCE price index ticked up 0.1% in August after increasing 0.2% in July. Prices for goods decreased 0.2%, while prices for services increased 0.2%. Food prices increased 0.1%, while energy prices decreased 0.8%. Excluding food and energy, the PCE price index increased 0.1%. The 12-month PCE price index for August increased 2.2%. Prices for goods decreased 0.9%, while prices for services increased 3.7%. Food prices increased 1.1%, while energy prices decreased 5.0%. Excluding food and energy, the PCE price index increased 2.7% from one year ago. Also in August, both personal income and disposable (after-tax) personal income rose 0.2%. Personal consumption expenditures, a measure of consumer spending, increased 0.2%.

• The Consumer Price Index rose 0.2% in August, the same increase as in July. Over the 12 months ended in August, the CPI rose 2.5%, down 0.4 percentage point from the 12-month period ended in July. This was the smallest 12-month increase since February 2021. Excluding food and energy, the CPI rose 0.3% in August, (0.2% in July), and 3.2% from August 2023. Shelter prices rose 0.5% in August and were the main factor in the overall increase. Since August 2023, shelter prices have risen 5.2%. Excluding shelter prices, the CPI was unchanged in August and up 1.1% from a year earlier. Energy prices fell 0.8% from July and 4.0% from August 2023. Prices for food rose 0.1% in August (2.1% for the year).
• The Producer Price Index rose 0.2% in August after being unchanged in July. The increase was attributable to a 0.4% increase in prices for services. Prices for goods did not change. For the 12 months ended in August, producer prices advanced 1.7%, 0.5 percentage point below the rate for the 12-months ended in July.
• Housing: Sales of existing homes declined 2.5% in August and 4.2% over the last 12 months. According to the National Association of Realtors® (NAR), the market for existing homes remained sluggish but lower mortgage rates and increased inventory should help spur sales moving forward. Unsold inventory of existing homes in August represented a 4.2-month supply at the current sales pace, up slightly from the July estimate. The median existing-home price was $416,700 in August, down from the July estimate of $421,400, but 3.1% above the August 2023 price of $404,200. Sales of existing single-family homes decreased 2.8% in August and were 3.3% under the August 2023 rate. The median existing single-family home price was $422,100 in August, down from $427,200 in July but well above the August 2023 estimate of $410,200.
• New single-family home sales decreased in August, falling 4.7% below the July estimate but 9.8% higher than the August 2023 rate. The median sales price of new single-family houses sold in July was $420,600 ($429,000 in July). The August average sales price was $492,700 ($508,200 in July). The inventory of new single-family homes for sale in August represented a supply of 7.8 months at the current sales pace, up from 7.3 months in July.
• Manufacturing: Industrial production increased 0.8% in August following a 0.9% in July. Manufacturing output rose 0.9% in August, rebounding from a 0.7% decline in July. The August increase was due, in part, to a recovery in motor vehicles and parts, which jumped nearly 10.0% after falling 9.0% in July. Manufacturing excluding motor vehicles and parts rose 0.3%. Mining output climbed 0.8%, while the index for utilities was unchanged. For the 12 months ended in August, total industrial production was unchanged from its year-earlier level. Over the same period, manufacturing increased 0.2%, mining increased 0.1%, while utilities fell 0.9%.
• New orders for durable goods were unchanged in August from July. Excluding transportation, new orders increased 0.5%. Excluding defense, new orders decreased 0.2%. Electrical equipment, appliances, and components, up two of the last three months, drove the increase after advancing 1.9%. New orders for nondefense capital goods decreased 1.3% in August, while new orders for defense capital goods increased 5.3%.
• Imports and exports: U.S. import prices ticked down 0.3% in August following increases of 0.1% in both July and June. The August decline in imports was the largest monthly drop since the index decreased 0.7% in December 2023. In spite of the August decline, U.S. import prices increased 0.8% over the past year. Import fuel prices decreased 3.0% in August after increasing 1.1% the previous month. The August drop was the largest one-month decline since the index fell 8.0% in December 2023. Prices for nonfuel imports edged down 0.1% in August. Prices for U.S. exports fell 0.7% in August, after advancing 0.5% the previous month. Lower prices for nonagricultural and agricultural exports each contributed to the decrease in U.S. export prices in August. U.S. export prices fell 0.7% for the year ended in August, the first 12-month drop since April 2024.
• The international trade in goods deficit was $94.3 billion in August, down $8.6 billion, or 8.3%, from July. Exports of goods were $177.0 billion in August, 2.4% over July exports. Imports of goods were $253.8 billion in August, 1.6% below the July estimate. Since August 2023, exports increased 4.1%, while imports increased 6.9%.
• The latest information on international trade in goods and services, released September 4, is for July and revealed that the goods and services trade deficit was $78.8 billion, up $5.8 billion, or 7.9%, from the June deficit. July exports were $266.6 billion, 0.5% more than June exports. July imports were $345.4 billion, 2.1% above June's estimate. Year to date, the goods and services deficit increased $36.2 billion, or 7.7%, from the same period in 2023. Exports increased $65.9 billion, or 3.7%. Imports increased $102.1 billion, or 4.5%.
• International markets: China's stock market, which had been tumbling for several months, shot higher at the end of September on the heels of the most aggressive stimulus measures since the pandemic, which included interest rate cuts and fiscal support, in an attempt to rejuvenate China's sagging economy. Elsewhere, the annual inflation rate in Germany fell to 1.6% in September, the lowest rate since February 2021. Producer prices in Greece fell by 2.4% since August 2023, marking the sharpest deflation since February. Japan's industrial production fell more than expected in August as motor vehicle output slid 10.6%. For September, the STOXX Europe 600 Index dipped 0.4%; the United Kingdom's FTSE fell 1.1%; Japan's Nikkei 225 Index slipped 2.0%; while China's Shanghai Composite Index jumped 18.7%.
• Consumer confidence: Consumer confidence fell in September to 98.7, from an upwardly revised 105.6 in August, according to the Conference Board Consumer Confidence Index®. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, fell to 124.3 in September, down 10.3 points from the previous month. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, declined to 81.7 in September, down from 86.3 in August.

Eye on the Month Ahead

The Federal Reserve does not meet in October, so there will be some time to determine the impact of the September 50.0-basis-point rate cut. Of course, all eyes will focus on the results of the presidential and congressional elections in November.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.

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