Equity Markets – Keep on Truckin’
Equity markets gained during the week, reaching all-time highs. The S&P 500 Index rose 1.4%, while the NASDAQ Composite gained 2.0%. The Magnificent 7 performed in line with the core benchmark. Small caps also rose to a lesser degree, rising 0.6% for the week. Bond indices fell 1.5% during the week.
Strong Economic Releases Blur Forecasted Number of Rate Cuts
Job numbers recently released came in much higher than expected. For the month of September, 254,000 new jobs were created. The unemployment rate for September fell to 4.1%. July and August job numbers previously released were also revised higher. Bond yields rose significantly on the news. Earlier in the week, Fed Chair Jerome Powell stated the jobs picture was solid but has cooled over the past year. There is now some uncertainty as to the number and degree of cuts to the Federal Reserve rate for the remainder of 2024.
Other recent economic data releases have also shown continued resiliency. The Services segment of the economy, as measured by ISM Services PMI index, came in stronger than expected for September and was the third consecutive month of expansion for that portion of the economy. The Services segment of the economy, which represents approximately two-thirds of the economy, has been in expansion mode for the overwhelming majority of the last two years.
However, small business owners continue to face uncertainty regarding their particular portion of the economy. The NFIB Small Business Optimism Index, which measures optimism among small business owners, came in at 91.5 for September, rising slightly higher from August levels. This is the 33rd consecutive month that the index has been below its 50-year average of 98.
Lowered Forecasts for Third Quarter Earnings Season
Third quarter earnings season is about to commence, coming off the heels of solid second quarter results. Year-over-year earnings growth for the third quarter is forecasted to be 5.0%. Earnings forecasts have been recently reduced as analysts have been paring back their expectations for earnings growth. However, United States large cap equities continue to lead small cap and foreign equities with regards to forecasted earnings growth, and as such, investors have been willing to pay a premium for this expected growth. The Information Technology and Communication Services sectors are expected to lead third quarter earnings growth, with the remainder of the sectors forecasted to also see positive year-over-year earnings growth, with the exception of the Energy and Materials sectors.
The S&P 500 is expected to achieve 9.9% year-over-year earnings growth for 2024 and 14.9% earnings growth for 2025 with the Information Technology, Communication Services and Health Care sectors expected to provide leadership.
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Sources: BTC Capital Management, S&P Dow Jones Indices, IHS Markit, FactSet
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