Weekly Market Performance — September 27, 2024

Additional content provided by Brian Booe, Associate Analyst, Research.

U.S. stocks printed another weekly gain to place major indexes well on track for monthly gains, and to buck historical trends of weak returns in the month of September. Markets rallied around positive macro data, as well as a midweek wave of artificial intelligence (AI) enthusiasm after positive AI-related earnings and guidance. Meanwhile, Asian markets delivered their best week in 16 years after the People’s Bank of China (PBOC) unleased an aggressive economic stimulus package. Treasury prices were flat on the week as the bond market continued to digest last week’s rate cut, while oil prices sold off on potential production increases.     

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 09/27/24 @2:30 p.m. ET
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

U.S. Equities: U.S. stocks welcomed the change in season, finishing the first week of autumn with solid gains despite a slower week for market catalysts and major headlines. Tech stocks did a lot of the heavy lifting as AI returned to the spotlight, powering the tech-heavy Nasdaq Composite 0.7% higher. The S&P 500 secured multiple record highs over the last five sessions, bringing the yearly total to over 40, and closed the week 0.7% in the green, while the blue-chip Dow ended 0.5% higher. Large cap growth underperformed value, while small cap stocks edged slightly lower. 

Markets largely treaded water over the first half of the week, awaiting fresh catalysts in the wake of last week’s Federal Reserve (Fed) cut. Tuesday’s drop in the Conference Board’s measure of consumer confidence provided a slight overhang on markets in the middle of the week, however, a full slate of economic data, paired with tech earnings, energized markets for Thursday and Friday’s trading sessions. The final reading of second quarter (Q2) gross domestic product (GDP) was unrevised from the second print, while Q2 personal consumption was revised 0.1% lower from the second release. Focus returned to AI and semiconductor stocks midweek, as tech names powered the S&P 500 to its 42nd all-time high of 2024 on Thursday, in another wave of AI enthusiasm. Micron Technology (MU) sparked the tech rally after delivering an earnings beat and raising fourth quarter guidance, followed by a so-called AI utility stock, NRG Energy, also raising guidance, while Accenture (ACN) beat revenue forecasts on the back of the consulting firm’s generative-AI business. Returning to the economic calendar, stocks climbed briefly before trading mixed after cooling inflation data on Friday. The Fed’s preferred inflation gauge, core Personal Consumption Expenditures (PCE), ticked higher on an annual basis, but at the slowest rate in months. 

International Equities: Across the pond, European stocks closed the week with solid gains, broadly powered by growing conviction that interest rates in both the Eurozone and the U.S. will continue to fall. European Central Bank (ECB) rate cut bets were bolstered by an eight-month low in the Eurozone Purchasing Managers’ Index (PMI), due to accelerated contraction in manufacturing and a slowdown in the services sector, plus increased Consumer Price Index (CPI) outlooks based on a recent ECB survey. Elsewhere, Swiss stocks advanced on the week after the Swiss National Bank (SNB) cut rates by 0.25% on Thursday in efforts to preserve the strength of the Swiss franc.   

Meanwhile, in Asian markets, greater China captivated global market attention after the PBOC delivered direct liquidity to investors. Policymakers unveiled an aggressive monetary easing package aiming to rejuvenate the struggling economy, propelling Chinese stocks to their best week since 2008. The economic stimulus package included a reduced seven-day reverse repo rate (the rate at which the PBOC borrows money from commercial banks) and medium-term lending rates, slashed reserve requirements for banks, and vows from the Politburo (the committee which oversees the central government) to steady the housing market and increase financial support. Japan closed in positive territory following in-line inflation data releases, plus Bank of Japan (BOJ) meeting minutes, which indicated committee members were split on the pace for future rate hikes. Taiwan, South Korea, and India all gained ground as well.

Fixed Income, Currency, and Commodity Markets

Fixed Income: The Bloomberg Aggregate Bond Index was flat during the week, and the Treasury yield curve continued steepening throughout the majority of the week. The 10-year yield was little changed, near 3.75% Friday afternoon, while the rate-sensitive two-year yield rose slightly to 3.56%. Additionally, the Treasury Department successfully auctioned off over $180 billion (total) in two-year, five-year, and seven-year securities. All three auctions were relatively well-received (especially the seven-year). 

Over the last few sessions, fixed income investors may be feeling a little perplexed. After months of anticipation, the Fed finally cut interest rates last week, but since then, Treasury yields have actually moved higher. The reason? Not only were markets expecting the rate cut, but the bond market also expects more rate cuts over the next 12 months. Many financial markets are forward-looking, so markets tend to price in the prospects of rate cuts before they occur. Currently, bond markets are pricing in an aggressive rate-cutting cycle by the Fed with the expectation that the fed funds rate will be below 3% by next July. For Treasury yields to fall meaningfully from current levels, economic data would need to come in weaker than the soft landing that is currently priced in. So, what’s next? History shows that without signs of recession, intermediate and longer-term yields tend to drift higher, particularly as the Treasury yield curve further disinverts. LPL Research’s base case remains no recession this year and our year-end target for the 10-year Treasury yield is 3.75% to 4.25%. While yields may move slightly higher from current levels, we still think we’re past peak Treasury yields for this cycle. 

Commodities and Currencies: The Bloomberg Commodities Index traded 2% higher this week. West Texas Intermediate (WTI) crude was in focus after selling off 5% on potential easing supply disruptions in Libya, as well as the possibility of Saudi Arabia starting a production war to recapture market share. Gold continued to rally throughout the week, trading near all-time highs intraweek, as increasing bets on global central banks reducing interest rates (which lowers the opportunity cost of holding the non-interest-bearing bullion) propelled gold to its third weekly advance of the month, and on track for its best quarter in eight years. Silver prices also rose, in a so-called spillover impact from gold enthusiasm, while copper prices surged on a boosted demand outlook following China’s economic stimulus package. The U.S. dollar index ended slightly lower, while the Japanese yen jumped following prime minister election results in Japan, but ultimately weakened over the last five days.  

Economic Weekly Roundup

Capital markets were tasked with digesting a fair amount of macro data this week, headlined by the Conference Board’s September Consumer Confidence Index, the final reading of Q2 GDP, and the primary highlight — August PCE.  

The September Consumer Confidence Index experienced its largest dip since August 2021, with the labor market flagged as a notable drag. The labor market differential deteriorated after less consumers described jobs as “plentiful” compared to August, and 18.3% of consumers stated jobs were “hard to get” — a 1.5% increase from 16.8% in August. The final reading for Q2 GDP was unrevised at 3.0%, bolstering investor sentiment as the data reinforced belief that the U.S. economy is holding up well. The Fed’s preferred inflation measure, core PCE, which strips out volatile food and energy prices, increased to 2.7% from 2.6% on a year-over-year basis, while growing at a slower pace, from 0.2% in August versus 0.1% in September, month over month.  

This week’s economic releases indicated that inflation is continuing to cool, reassuring investors that the Fed’s jumbo 0.5% rate cut was the right move. However, markets continue to closely monitor the labor market, which was flagged as a determining factor in last week’s Fed rate cut, as well as future monetary policy decisions. Initial jobless claims remain range bound, as downward revisions to prior claims data and current prints arriving below last week’s reading reinforced that the labor market is cooling at a measurable pace, but not cratering.  

The Week Ahead

The following economic data is slated for the week ahead:    

• Monday: Market News International Chicago PMI (Sep), Dallas Fed Manufacturing Activity (Sep)  
• Tuesday: S&P Global U.S. Manufacturing PMI (Sep final), Construction Spending (Aug), JOLTS Job Openings (Aug), ISM Manufacturing (Sep), ISM Prices Paid (Sep), ISM New Orders (Sep), ISM Employment (Sep), Dallas Fed Services Activity (Sep), Wards Total Vehicle Sales (Sep) 
• Wednesday: MBA Mortgage Applications (Sep 27), ADP Employment Change (Sep) 
• Thursday: Challenger Job Cuts (Sep), Initial Jobless Claims (Sep 28), Continuing Claims (Sep 21), S&P Global U.S. Services PMI (Sep final), S&P Global U.S. Composite PMI (Sep final), Factory Orders (Aug), Factory Orders ex Transportation (Aug), Durable Goods Orders (Aug final), Durable Goods Orders ex Transportation (Aug final), Capital Goods Orders Nondefense ex Aircraft (Aug final), Capital Goods Shipments Nondefense ex Aircraft (Aug final), ISM Services Index (Sep), ISM Services Prices Paid (Sep), ISM Services Employment (Sep), ISM Services New Orders (Sep) 
• Friday: Change in Nonfarm Payrolls (Sep), Two-Month Payroll New Revision (Sep), Change in Private Payrolls (Sep), Change in Manufacturing Payrolls (Sep), Unemployment Rate (Sep), Average Hourly Earnings (Sep), Average Weekly Hours All Employees (Sep), Labor Force Participation Rate (Sep), Underemployment Rate (Sep)