Investment Update October 1, 2024

Last Week on Wall Street

Economic data for the week included the final edition of Q2 U.S. Gross Domestic Product growth coming in unrevised at a continued strong pace. Personal Consumption Expenditure inflation was slightly improved, while durable goods orders were unchanged. House prices continued to see gains, while new home sales fell back for the month.

Equities were generally positive globally, led by foreign markets, and particularly Chinese stocks as government stimulus measures were announced. Bonds were flattish in the U.S., but positive abroad due to a weaker U.S. dollar. Commodities were mixed, with gains in metals especially from the Chinese stimulus, while energy prices fell with higher expected supplies.

Foreign stocks fared especially well last week, with gains in Europe and the U.K. outpacing the U.S., as both services and manufacturing activity fell and raised hopes for rate cuts sooner. (In fact, central banks in Sweden and Switzerland did cut another quarter-percent last week.) Japan lagged with minor declines. Emerging markets were the key story, with gains of over 15% in China leading all other nations by a large degree, with next highest in Taiwan and South Korea, which tend to be related. The Chinese central bank announced a series of policy easing measures last week, including a -0.20% cut in primary 7-day policy rates, as well as a -0.50% cut in bank reserve requirements that loosen up liquidity for lending, and a -0.50% cut in outstanding mortgage rates. It also included more property reforms, lower down payments, and liquidity facilities to help the stock market, with support for refinancings and stock buybacks. It did not directly address one of the key underlying issues in the Chinese economy, domestic consumer demand, which remains lackluster and is a key reason for gradually declining long-term growth forecasts when coupled with slowing demographic influences.

Bonds experienced an extremely flattish week, in keeping with minimal change in U.S. Treasury yields across the curve. High yield earned a few basis points more than Treasuries for a slight lead, while foreign bonds fared more positively, with help from a weaker U.S. dollar.

Commodities were mixed for the week, with gains in industrial metals and agriculture were offset by declines in energy. Metals gained specifically due to expected pickup in demand from China, with gains in copper and aluminum. Crude oil declined by -4% last week to $68/barrel, following reports that Saudi Arabia is interested in taking back market share by abandoning its $100 oil price target. Natural gas prices continued to spike, with Hurricane Helene bearing down on the Gulf Coast states gained last week on the heels of benign U.S. economic data and announced stimulus measures in China. Results by sector were mixed, with the strongest gains in materials (with items such as copper and certain chemicals seen as a direct beneficiary of greater Chinese activity), consumer discretionary, and communications, while health care, energy, and financials experienced small declines. Real estate was also down slightly, with interest rates little changed.

Fact of the Week

Business formations in the United States increased by 2.6% between July 2024 and August 2024, with 431,928 business applications received in August 2024. The South had the highest number of submitted applications at 194,505, followed by the West with 103,281. The Midwest reported 71,557 applications, while the Northeast fell into last place with 62,585 applications (source: United States Census Bureau).