November 5, 2024
Market Monitor: October Update
Headlines and Highlights
- Markets dip ahead of U.S. election: Election uncertainty caused pre-vote volatility and a down month for most financial markets in October. The tight presidential race between former President Donald Trump and Vice President Kamala Harris, with future control of Congress also at stake, weighed on investors and ended the S&P 500’s five-month winning streak. The index declined 1% as the result of a Halloween sell-off that erased its monthly gain, but it remained up 20.8% year-to-date. International developed stocks sank 5.3% and emerging-markets stocks fell 3.1%, pressured by the dollar’s 3% rise. REITs and bonds also had their 2024 gains trimmed.
- Jobs data boost rate-cut hopes: Hurricanes and strikes led to a weakening of the labor market last month, increasing market expectations for the Federal Reserve to reduce interest rates twice more before year-end. Ahead of the Fed’s meeting later this week, the market consensus had begun to shift toward a potential pause in the Fed’s rate cuts in the wake of September’s half-percentage-point reduction. But reports showing job openings declining to their lowest level (7.4 million) since January 2021 and the addition of just 12,000 jobs in October restored expectations for two quarter-point cuts by year end.
- IMF cites global economy’s resilience: The world economy remains stable after overcoming recessionary risks, and “the global battle against inflation is almost won,” the International Monetary Fund said in its World Economic Outlook report. The fund maintained its forecast of 3.2% global growth for both 2024 and 2025. It raised its U.S. growth estimate to 2.8% for 2024 and 2.2% in 2025, up from 2.6% and 1.9% in its prior quarterly report. Rising geopolitical risks and weaker long-term growth prospects cloud the longer-range outlook.
Selected Market Returns
Sources: Morningstar, Altair Advisers
Our Views
- Market volatility can be expected after the election if significant extra time is needed to determine who won the presidency, sapping business and consumer confidence. With a strong economy, however, we expect any market turbulence to be short-lived.
- The robust consumer spending that powered the U.S. economy to 3.8% annualized growth in the third quarter should continue as inflation cools and borrowing rates drop. Consumer sentiment climbed to a six-month high last month and spending remained strong. Consumer demand is the main engine of U.S. growth.
- Rising corporate earnings should help provide a solid economic base for the next president. S&P 500 company earnings rose an estimated 5.1% year-over-year in the third quarter, according to FactSet – the fifth in a row of growth – and are predicted by analysts to set new quarterly records throughout 2025.
- The Federal Reserve is likely to reduce the benchmark interest rate to 4.25% by year-end with a pair of 25-basis-point cuts at its meetings Thursday and December 18th. Based on its own projections, we expect the Fed to continue but slow its rate-cutting next year as it remains alert to the possibility of fluctuations in inflation.
- Inflation is under control for now and the inflation fight is on hold with U.S. price increases down close to the Fed’s 2% target rate. A risk remains that inflation reignites next year, particularly since both presidential candidates have proposed increased government spending.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice.