September 6th, 2024
September got off to a rocky start with the S&P 500 losing 240 points or 4.25%, the NASDAQ shed 1,023 points or 5.78% while the DOW dropped 1,218 points or 2.93%. Historically September is a rough month for investors, while history doesn’t always repeat, it often rhymes. That said the last few years have seen October through December provide a nice Santa Claus rally, so don’t run for the hills just yet.
A quick look at asset class performance in August compliments of Bloomberg and Deutsche Bank shows us that Brazil’s BOVESPA Index led while West Texas Intermediate Crude Oil lagged. The rest came in somewhere in the middle.
With nine 25bp (.25%) rate cuts priced in by end-2025, the market is expecting a more conventional easing cycle, with fed funds reaching a terminal rate of 3% next year. Once again, I think Mr. Market has gotten way over his skis with respect to interest rate cuts. I do expect the Fed to cut rates however beginning this month and continuing into 2005, just not 9-times.
Inflation continues to moderate back towards the Fed’s desired target of 2%. The July PCE price index, The Fed’s favorite as rumor has it, which includes the food and energy components, rose by 2.50% year-over-year in July, up slightly from June’s 2.47% led by energy and food prices, aka the usual suspects.
This week’s economic and market highlights include the 19th month in a row when disposable income outran inflation on a year-over-year basis, up 1.1%. According to the Bureau of Economic Analysis on an annualized basis. Consumer Spending growth over the past three months, adjusted for inflation, was 4.8%. Which brings me to the Atlanta Fed GDPNow Model, which attempts to estimate Q3 growth of real, or inflation adjusted, GDP, jumped to +2.5% from 2.0%. The 10-year average real GDP growth for the US is about 2.0%. Hard to figure a recession after all that, but I’ve been told that in a world where a carpenter’s son can be raised from the dead, anything is possible.
As per usual there are a few areas of concern. Construction spending slipped .3% in July. Residential construction fell .4%, historically this spending category tends to lead the economy into and out of recessions. While cause for concern, doesn’t mean the sky is falling for all the Chicken Little fans out there.
Construction spending data from Census Department, thanks to Mish for the chart.
The big news this week was the non-farm payrolls report released Friday. The markets were widely expecting a huge miss. Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate changed little at 4.2 percent, per the U.S. Bureau of Labor Statistics. More or less in the middle of expectations. As per usual this report was sliced and diced like a Sushi chef with a piece of Blue Fin, but no disasters were found. June and July payrolls were revised down by 82,000 combined. The participation rate and the employment population ratio were unchanged. The three-month average of employment growth slowed to 116,000 per month, below the average of 150,000 thought of as necessary to keep up with population growth. Certainly not great numbers, but not the kind of data that will push the Fed to cut rates ½% this month either.
That’s all for now, enjoy your weekend and I’ll be back next Friday with another installment.
Best, Caleb Lawrence