Your Monthly Market Newsletter, October 2024

The long-awaited cut to interest rates by the Federal Reserve (Fed) has finally arrived. At its September meeting, the Fed expressed greater confidence that inflation is moving toward its target 2% rate and cut rates by 50 basis points, ending a 23-year high. Fed officials anticipate making an additional two rate cuts of 25 basis points each before the end of the year, with more cuts expected in 2025 and 2026.

Despite the good news about rate cuts and inflation, the latest Consumer Confidence Index experienced its most significant drop in more than three years. Consumers reported feeling increasingly pessimistic about the cooling job market as the unemployment rate has ticked up in recent months to 4.2% while job openings have decreased. Fed Chair Jerome Powell acknowledged the risks of the slowing job market to the economy but determined that the U.S. economy is still solid. Another sign of the shifting labor market is a decrease in the number of people quitting, indicating that workers are holding on to their current jobs, perhaps concerned that finding new jobs will be more difficult. The "Great Resignation" that followed the pandemic, when there was an abundance of new jobs and higher salaries, appears to be turning into the "Great Stay."

The rate cut may give the sluggish housing market a much-needed jolt. During the first eight months of 2024, only 2.5% of U.S. homes changed hands, marking the lowest turnover rate in the past 30 years. High mortgage rates and construction costs have discouraged many potential homebuyers from purchasing new homes, and current homeowners have had little incentive to put their homes on the market, limiting inventory and driving up prices. Though mortgage rates have decreased from a peak of 7.79% in late 2023 to 6.09% in September 2024, rates are still higher than most homeowners are currently paying. Nearly 60% of active mortgages have interest rates below 4%, locked in before rates skyrocketed in 2022. However, the continuing downward trend may boost borrowers' optimism, leading to a healthier housing market in years to come.

October is Estate Planning Month. If you're wondering if estate planning is right for you, it's important to know even people with modest assets need a written plan. Though no one likes thinking about death, estate planning ensures that your money, property, and assets are distributed according to your wishes upon death. If you've already developed your plan, don't 'set it and forget it.' As your life changes, your estate plan should reflect those changes, too. Here are a few tips to consider as you start estate planning:

• Remember to include a will. Work with a legal professional to create a will that details your wishes regarding the distribution of your property, money, and assets, and who will care for minor children or pets.
• Consider using a trust to preserve valuable assets. A house is an excellent example of something that can be extremely time-consuming and emotionally exhausting to transfer after someone dies.
• Keep an up-to-date inventory of your assets and list who receives each asset and their approximate value in the estate plan.
• Establish your directives, such as a power of attorney, medical care, and trust documents.
• Review your beneficiaries often. A change in beneficiaries would be necessary due to divorce, the birth of a new child, the loss of a loved one, a marriage, etc.

Having a team of financial professionals you trust is crucial. We’d be happy to work with your legal and tax advisors to ensure your estate plan is comprehensive and effective. Our goal is to help you ensure that the assets you've spent a lifetime accumulating will transfer to your heirs when it's time. If you have any questions regarding estate planning, your finances, or anything else, please don't hesitate to reach out. We're here to help. Wishing you and your loved ones a safe and happy October!

Stocks

September tends to be the worst month of the year for equities. Still, this year proved otherwise as all three major U.S. equity indices climbed nearly 2% higher on the month (despite selling pressures earlier in the month after a weaker-than-expected jobs report). Much of the rise in equities can be attributed to a larger-than-anticipated interest rate cut by the Fed, which helped alleviate concerns that interest rates were too restrictive for economic growth. This interest rate cut positively impacted the market returns of smaller companies, which outpaced their large-cap peers in the third quarter thanks to their relatively higher interest financing costs.

Sector Performance

Market performance was broadly positive, with 8 of the 11 sectors rising on the month. Sectors sensitive to interest rates – like Utilities – saw robust gains, as did economically sensitive portions of the economy, such as Consumer Discretionary and Materials. The traditionally defensive side of the market underperformed; Health Care, Financials, and Consumer Staples fell month-over-month. Notably, the Chinese government's release of massive stimulus packages to boost spending in the otherwise anemic emerging market economy fueled investor optimism, causing stocks with Chinese revenue exposure to perform strongly.

Bonds

Fixed income assets gained in September, appreciating in price as bond yields fell. (Bond prices and yields have an inverse relationship.) The 10-year yield fell 12 basis points (bps), and the two-year yield fell 28 bps. Despite the Fed’s large rate cut, much of the 50 bps was already priced in by markets, which resulted in a considerable decrease in yield. Current market predictions show the Fed cutting interest rates by an additional 50–75 bps total through the rest of the year. Unlike most interest rate cutting cycles, these cuts are expected to be delivered in a strong economy rather than as a reaction to deteriorating economic conditions. This continued economic stability is a tailwind for lower-quality debt as corporate revenues are resilient.

Economic Update

September was characterized by moderating economic data. On the inflation front, the Consumer Price Index (CPI) and Personal Consumption Expenditures Price Index (PCE) moved closer to the Fed’s 2% target, to 2.5% and 2.2% year-over-year, respectively. Gross Domestic Product (GDP) was unchanged in its revision. It remained at 3% but shifted in composition as government spending occupied more of the index than previously anticipated. The Institute for Supply Management (ISM) Services and Manufacturing indices moved higher compared to last month. However, the manufacturing index contracted for a sixth consecutive month as demand remained slow. The labor market saw the unemployment rate fall below August’s high, though it remained elevated compared to earlier this year. When taken in aggregate, the economy continues to grow but at a slower pace than last year as the effects of monetary policy are starting to emerge.

THOUGHT FOR THE MONTH

^{Index Definitions}

^{Dow Jones Industrial Average:The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.}

^{Dow Jones U.S. Real Estate Total Return Index:The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.}

^{NASDAQ Composite:The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.} 

^{S&P 500 Bond Index:The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.}

^{S&P 500 Consumer Discretionary:The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.}

^{S&P 500 Consumer Staples:The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.}

^{S&P 500 Energy:The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.}

^{S&P 500 Financials:The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.}

^{S&P 500 Index:The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.}

^{S&P 500 Utilities:The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.}

^{S&P U.S. Aggregate Bond Index:The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.}

^{S&P U.S. Treasury Bond Index:The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.}

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^{A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.}

^{Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.} 

^{Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.}

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