Equity markets were once again higher during the month of September, driven largely by the Fed’s 0.50% interest rate cut as it seeks to normalize rates with inflation largely under control. The S&P 500 rallied +2% in September for its fourth consecutive monthly gain and is now up +22% on the year.
Overseas equities also received a boost from supportive monetary policy, as the Chinese stimulus announcement sent the MSCI ACWI ex-US index up +3% for the month (+14% year-to-date), with emerging market stocks in particular up over +6% in September.
On the fixed income side, the Bloomberg Aggregate Index gained +1.3% in September as bond prices rose in response to the lower rate environment, with the index now up +4.5% for the year.
The Bloomberg Commodity Index rose +5% this month (+6% YTD) on the back of another solid month for gold, which is now up +27.5% in 2024.
Our proprietary Three Dials readings remain unchanged through the end of July, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
What started as an AI-fueled, tech driven bull market in stocks has transformed into a broader and potentially more sustainable uptrend. The average number of stocks reaching new highs hit its highest level since 2021, while the so-called “Magnificent Seven” stocks underperformed the rest of the S&P by over 5% in Q3.
With the bulk of the market now pulling its weight, we leave our Momentum Dial in a Positive position.
- Economic Fundamentals: (Negative ❌)
While the Fed’s supersized rate cut should go a long way toward supporting economic growth, there is a possibility it could turn out to be “too little, too late” with cracks already starting to show. Job openings have come down by 1.3 million in the past year, while Chapter 11 bankruptcies reached their highest level since 2012.
On balance, our Fundamental Dial remains in a Negative position.
- Valuation: (Negative ❌)
With earnings season around the corner, Wall Street estimates for Q3 growth have already been cut nearly in half, led by the Energy sector as oil prices declined -17% during the quarter. While the Fed cut will boost short-term optimism, sustained earnings growth will be required to support the current lofty valuations.
As such, our Valuation Dial remains Negative.
Our composite Three Dials reading remains in a Moderately Defensive position through the most recent month-end, with two dials Negative and one dial Positive.
Sources: Morningstar
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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