Market Note – October 23, 2024

By Hightower Great Lakes on October 23, 2024

Another Week of Positive Data

Markets gained 0.96% last week on the back of continued stronger- than-expected economic data and bank earnings. The S&P 500 is up 23% year-to-date (YTD) for the best return in a presidential election year ever.

It has not been the technology sector pushing the market to all-time highs, the top two performing sectors are utilities and financials, up 30% and 27% YTD respectively. Technology is up 20% YTD.

Last Friday, the Atlanta Fed updated its annualized third-quarter GDP growth rate to 3.4%. Its third-quarter projection has been trending higher since early August as economic data continues to remain strong.

Weekly Jobless Claims came in below expectations at 241K (a good thing) after a hotter-than-expected 260K print the previous week. September’s retail sales came in slightly above consensus at 1.7% y/y and 0.4% m/m.

Importantly, the Retail Sales Control Group (which feeds into GDP) grew 0.7% m/m, well above estimates of 0.3% and the best reading over the past three months.

Additionally, last month’s ISM Services report came in at a reading of nearly 60; any reading above 50 signifies an expanding services sector. Services account for 75% of overall consumption, a good sign that services remain the strong part of the economy.  

Across the economy, the American consumer is spending and well-balanced. We are seeing this in the data and hearing it from large financial institutions. Bank of America (BAC) credit card loss rates in the third quarter declined to 3.7%, relative to 3.88% in the second quarter.

Consumer net charge-offs declined, and the company mentioned they saw “lower credit card losses” across consumer cohorts. American Express’ (AXP) business is being driven by growth among Millennials and Gen Z segments.

These two younger generations now account for 33% of total U.S. consumer spending and 80% of new accounts. Other large-cap banks like Morgan Stanley (MS) and Goldman Sachs (GS) had strong quarters on investment banking fees and wealth management revenues.

To note, net interest income (NII) drives a large portion of these companies’ revenues, and we have yet to see a recovery here. We expect this to bottom in 1Q 2025 as another driver to earnings next year. 

Chart 1: Atlanta Fed’s GDP Tracker is Projecting 3.4% Growth in Q3[1]

Q3 Earnings Update

It is the beginning of Q3 earnings, but as early snapshot, 14% of companies have reported Q3 earnings with 79% beating EPS estimates and 64% beating revenue estimates. The current blended EPS growth rate is 3.4% y/y, which is slightly below estimates for 4.3% y/y growth.

But impressively, total revenues are running ahead at 7% y/y growth. Markets are rewarding companies that are beating earnings; companies with positive earnings surprises have seen an average price increase of 2.6%, above the five-year average of 1%.

Estimates have mostly come in line thus far this quarter, and growth is expected to remain high over the coming quarters. The S&P 500 EPS growth estimates for Q4 ’24 is 14% y/y, followed by 13.8% and 13% in Q1 ’25 and Q2 ’25. We believe earnings are poised to grow 8-10% this year.    

Chart 2: Q3 Earnings Growth is Likely to be Led by Tech and Communication Services[2]

Fixed Income

U.S. Treasury yields were relatively unchanged last week, falling just 1-2 bps across the curve, leaving the 2s10s at +13 bps. Investment Grade spreads tightened 1 bp to +83, levels last seen in March 2005, and High Yield spread tightened 10 bp to +288, the tightest since June of 2007.

U.S. credit ratings deteriorated as the main rating agencies issued 47 downgrades and 35 upgrades. Within those changes, energy had the most upgrades and High Yield led the downgrades.

Municipal bond yields fell by 1-2 bps in the short and intermediate parts of the curve while the long end fell by 4 bps. Last week’s new issue volume was the third heaviest of the year and it looks to continue as this week’s new issue calendar (which totals $13.6 billion) is almost 50% higher than the one-year average.

The Week Ahead

Earnings – Tuesday: AOS, ARE, CSGP, DGX, DHR, ENPH, FCX, FI, GE, GM, GPC, IPG, IVZ, KMB, MCO, MMM, NSC, NUE, PCAR, PHM, PM, PNR, RTX, SHW, STX, TXN, VZ; Wednesday: ALGN, APH, AVY, BA, BKR, BSX, CME, GD, GEV, HTL, IBM, KO, LMT, LRCX, LVS, NEE, NOW, NTRS, ODFL, PKG, RJF, ROP, T, TDY, TMO, TMUS, TSLA, WAB; Thursday: AJG, ALLE, AMP, CARR, CBRE, COF, DECK, DLR, DOV, DOW, DTE, DXCM, EW, GL, HAS, HON, KDP, KKR, LH, LKQ, LUV, MOH, NDAQ, NEM, NOC, ORLY, POOL, RDM, ROL, SPGI, TER, TSCO, TXT, TYL, UNP, UPS, URI, VLO, VLTO, VRSN, WDC, WST.

Economics – Wednesday: FED Governor Bowman Speaks, Existing Home Sales; Thursday: Building Permits, Initial Jobless Claims, PMI Composite, PMI Manufacturing, PMI Services, New Home Sales; Friday: Durable Orders, Michigan Consumer Expectations.

Return for Selected Indices^[3]

Click here to read last week’s Market Note (10/15).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

---

[1] Source: Atlanta Fed. As of October 18, 2024.

[2] Source: FactSet. As of October 18, 2024.

[3] Source: Bloomberg. As of October 21, 2024.