Market Note – September 24, 2024

By Hightower Great Lakes on September 24, 2024

The Fed Makes its Highly Anticipated Move

Last week’s headlines were dominated by the Fed’s decision to cut interest rates for the first time since 2020. The 50-basis point (bp) cut was in line with futures pricing but went against many sell-side economists’ and analysts’ expectations.

We shared our thoughts in a Special Edition Market Note, and although the 50 bp move was a surprise to us, we think lower rates along with a growing and expanding economy are positive for stocks and risk assets.

Remarkably, the third quarter GDP estimates are tracking at 2.9%, and the economy remains strong as the Fed embarks on a new easing cycle – bullish for risk assets.

September’s volatile expectations have lived up to historical expectations. Over the past three weeks, the S&P 500 was down 4%, up 4% and 1% respectively. This is incredible movement in the short-term and we expect more of the same up until the election.

That being said, we are looking for opportunities in equities and fixed income assets given the resiliency of the U.S. economy. Over the past week, the data has been strong: retail sales in August grew 2.1% y/y, mortgage applications grew 14% w/w, 6.15% mortgage rates for the lowest print in two years, and initial jobless claims came in at a four-month low. We continue to watch the data and see no real signs of an economic slowdown.

This Friday, we receive August’s Personal Consumption Expenditure (PCE) data. The data will be closely watched by the Fed in hopes of inflation continuing its trend toward 2%, with consensus estimates at PCE up 2.3% y/y and Core PCE up 2.7% y/y.

Chart 1: As Inflation Trends Lower, the Fed has Moved its Attention to the Labor Market[1]

Sparks in the Housing Market

Last week we received positive signs of a much-anticipated turnaround in the housing market. Housing is one of our favorite long-term themes; the U.S. is over five million homes short and homebuilders have underproduced housing for the past 14 years.

Mortgage rates have declined to ~6.1% from October 2023 highs of 7.8% and last week’s data showed activity may start to rise as rates continue to decline.

Mortgage applications jumped up 14% w/w with housing starts up 9.6% m/m. Housing starts are a leading economic indicator and track the number of new residential projects that have begun construction.

Building permits, also a leading economic indicator, had their best sequential jump since August 2023. The Mortgage Bankers Association (MBA) index had its best reading since April 2022 as mortgage owners begin to refinance at lower rates.

Chart 2: Mortgage Rates are over 20% Lower from October’s High[2]

Fixed Income

While U.S. Treasury yields inside one year fell on the Fed’s announcement of a 50 bp cut, the rest of the yield curve was higher by the end of the week.

Longer maturities saw yields increase by more than shorter maturities, and as a result, the often watched 2’s/10’s yield curve steepened to 16 bps, the most positive reading in over two years. Credit spreads also displayed signs of confidence in the U.S. economy as we saw Investment Grade tighten by 7 bps to +128 and High Yield tighten by 22 bps to +361.

Rating agencies upgraded 48 issuers and downgraded 33. Within those changes, the financial sector had the most upgrades while consumer discretionary was most prevalent in the downgrades.

Municipal bond yields were a mixed bag with smaller yield moves as compared to Corporate & U.S. Treasury bonds. The ultra-short and long-end closed the week a touch higher, while yields in the belly of the curve finished slightly lower.

Borrowing in the Muni space is picking up again as this week’s long-term new issue calendar totals $14.7 billion, a notable 62% bump up from last week and 64% more than the one-year average.

The Week Ahead

Earnings – Tuesday: AZO; Wednesday: CTAS, MU; Thursday: ACN, COST, JBL, KMX.

Economics – Monday: PMI Composite, Market PMI Manufacturing, Markit PMI Services; Tuesday: FHFA Home Price Index, Consumer Confidence; Wednesday: Building Permits, New Home Sales; Thursday: Initial Jobless Claims, Continuing Jobless Claims, Final Q2 GDP, Pending Home Sales, Durable Orders; Friday: August PCE, Core PCE, Michigan Sentiment.   

Return for Selected Indices^[3]

Click here to read last week’s Market Note (9/20).

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.

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[1] Source: FactSet. As of September 20, 2024.

[2] Source: FactSet. As of September 22, 2024.

[3] Source: Bloomberg. As of September 23, 2024.