Markets “In a Nutshell” for September 23, 2024

Investment Week at a Glance

Stocks finished higher for the week. The Dow Jones Industrial Average rose 1.60%, the S&P 500 was up 1.40%, and the NASDAQ rose 1.50%. Foreign stocks (MSCI EAFE) were also up, rising 1.20%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.74%.  (Data source: Wall Street Journal)

Fed Cuts Rates By 0.50%

After the most aggressive tightening cycle in the past 40 years, the Fed finally made its first rate cut of 0.50%. The typical rate cut is 0.25% so the larger rate cut has some people wondering if the Fed thinks the economy may not be in a strong position. The decision was also not unanimous as Governor Bowman favored a 0.25% rate cut. This was the first time a governor has dissented since 2005. Only time will tell if the 0.50% cut was necessary as the Fed tries to balance avoiding a recession while continuing to bring down inflation. The Fed continues to see rates coming down until 2026 when they believe they will reach the neutral rate of around 2.9%. It is expected that we see 2 more rate cuts this year and currently projected for 4 next year.

Market Leadership Shift

The market continues to broaden out after tech has carried the overall market for the past couple of years. Since July, the S&P 500 is up 4% but the NASDAQ is only up 1%. International stocks have outperformed both indices as it is up over 6% since July. The best example of the mega-cap tech stocks not leading the way is that the equal-weight S&P 500 index is up 8.5% since the beginning of July. The equal-weight index had not been performing well the past 5 years as it trailed the S&P 500 by nearly 30%. From 2004-2020 we saw the opposite happen, the equal-weight index outperformed the market cap index by over 30%. This new trend is a sign that the market has been rotating away from the mega-cap stocks and moving into other areas of the market.

Quiz:

What is the average 18-month return for the S&P 500 following the first rate cut? (Scroll Down for Answer)

1.     3%
2.     5.5%
3.     8.5%
4.     12%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer below.

 

 

Have a Great Week!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer:

3.  8.5%. When looking at the 4 instances the economy was not in a recession, the average was a 30% return. When looking at the 4 instances the economy was in a recession, the average return was -14%.

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