Monthly Market Update | September 2024
Written By: Fairvoy Private Wealth, LLC.
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Monthly Market Summary
The S&P 500 Index returned +2.3% in August, outperforming the Russell 2000 Index’s -1.7% return. Nine of the eleven S&P 500 sectors traded higher, led by Consumer Staples, Real Estate, Health Care, and Utilities.
Corporate investment-grade bonds produced a +1.9% total return as Treasury yields declined, slightly outperforming corporate high-yield’s +1.5% total return.
International stock performance was mixed. The MSCI EAFE developed market stock index returned +3.3% and outperformed the S&P 500, while the MSCI Emerging Market Index returned +1.0%.
Stocks Rebound Following an Early-Month Selloff
Stocks traded higher in August despite an early-month selloff. The S&P 500 dropped over -5% in the first week after a report showed unemployment rose to 4.3% in July. Small-cap stocks underperformed as investors pulled back from riskier assets amid volatility. However, financial markets quickly stabilized and climbed throughout the month. The S&P 500 recovered all its losses, ending the month less than -1% below its all-time high from mid-July. The Nasdaq 100 Index, which includes the artificial intelligence companies that drove the stock market higher in early 2024, lagged the broader market. In the bond market, Treasury yields fell for the second consecutive month, driven by expectations for deeper rate cuts in response to rising unemployment. Bonds traded higher for a fourth consecutive month as Treasury yields declined and investors rushed to lock in current fixed income yields ahead of the first interest rate cut.
The September Slump
September has long held a reputation as a challenging month for the U.S. stock market. Historically, it has delivered lower average returns compared to other months. This trend, often referred to as the ‘September Effect,’ has been observed over several decades. Various theories attempt to explain this phenomenon. Some suggest that investors, returning from summer vacations, might sell off stocks to lock in gains or rebalance portfolios before the end of the third quarter. Others point to institutional investors engaging in tax-loss harvesting ahead of their fiscal year-end, increasing selling pressure and contributing to market declines.
September has long held a reputation as a challenging month for the U.S. stock market.
Following the typical September downturn, October often ushers in a period of recovery for the stock market. Despite its notoriety for historical crashes like those in 1929 and 1987, October has frequently been a month of rebounds and positive momentum. This recovery can be attributed to investors capitalizing on lower stock prices and positioning themselves for the year-end rally. Additionally, positive corporate earnings reports and economic data released in October can bolster investor confidence. While these patterns are notable, it’s important to remember that market movements are influenced by a complex interplay of factors, and past trends don’t guarantee future performance.
Our team, over the years, have worked with clients who were shaken out of the markets during the month of September, only to regret that decision a month later during a rebound in October. The added volatility, along with the emotions of the elections, is why it is so important to have a long-term plan and to stay with it.
Fed Set to Cut Interest Rates as Focus Shifts to the Labor Market
Investors expect the Federal Reserve to start cutting interest rates at its next meeting on September 17th. Fed Chair Jerome Powell signaled the move at last month’s Jackson Hole conference by saying, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” It was the Fed’s clearest policy signal since it last raised interest rates 14 months ago.
The Fed’s transition to cutting interest rates comes as its focus shifts from lowering inflation to supporting the labor market. Since the last rate hike in July 2023, inflation has dropped from 3.3% to 2.9%, while unemployment has risen from 3.5% to 4.3%. The Fed is more confident that inflation will return to its 2% target but is concerned about the overall health of the U.S. labor market. The key question is how much and how quickly the Fed will lower interest rates. Investors anticipate that the Fed will cut rates by approximately -2% through the end of 2025, but the timing and amount will depend on the economy’s path. A weaker economy would justify more rate cuts, while a stronger economy would likely lead to fewer rate cuts.
The information and opinions provided herein are provided as general market commentary only and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.