Q4 Look Ahead [Equity Markets]
October 1st, 2024
RECAPPING LAST WEEK
China’s central bank and politburo unveiled the biggest stimulus package since the pandemic, sending their country’s equity markets soaring and lending support to global stocks. U.S. equity index gains were muted, though, as investors fretted over our labor market outlook and a change in Japan’s leadership. The Nasdaq Composite index rose 1%, while the S&P500 added 0.6% and the Russell 2000 was flat. International emerging markets surged more than 6%, while non-U.S. developed markets jumped 3.5%. S&P500 sector returns titled positive, led by cyclical sectors like basic materials as most commodities received a lift from China’s news.
The PHLX Semiconductor index continued its rebound, spiking 4.5% and lifting the technology sector. Not all commodities saw gains, however—oil prices, for example, plunged nearly 4% after Saudi Arabia ditched its unofficial $100 per barrel target price and announced the country was prepared to increase production in December despite low prices. Gold futures added 1%, hovering near record highs.
U.S. inflation continued to trend lower, with the headline PCE index rising just 0.1% in August, which brought the annual rate down to +2.2%. Personal income and spending increases came in below forecasts. The U.S. economy appeared to be on track for a solid third quarter; the flash composite PMI was well into the above-50 expansion zone, registering 54.4 this month. The final Q2 GDP reading was +3.0%, and estimates for Q3 are similar. A sharply lower consumer confidence reading
reflected Americans’ growing concerns about a cooling jobs market. While weekly jobless claims remained low at 218k, the ratio of respondents that viewed jobs as “plentiful” versus “hard to get” was the lowest since March 2021.
The housing market saw modest improvement in pending home sales as buyers anticipated lower mortgage rates, but new home sales were still hampered by record prices and an inventory shortage. Overseas, China’s stimulus measures (detailed below) sent the country’s equity indices higher by nearly 20%, the biggest weekly gains since 2008. In Japan, the yen jumped, and Nikkei 225 index futures sank 4.5% in Friday’s after-hours session after former defense minister Shigeru Ishiba won a run-off election to become the country’s next prime minister. Ishiba has endorsed the Bank of Japan’s stance of moving away from decades of ultra-loose and yen-weakening monetary policy. Tokyo’s core inflation rose 2% in September, supporting market expectations for another rate hike before year-end. The Reserve Bank of Australia kept interest rates steady, and its statement indicated that rate cuts are not on the near-term horizon as inflation
remained above target. Last of all, European business activity contracted unexpectedly as France—
the EU’s second-largest economy—saw the prior month’s Olympics boost wear off.
THE WEEK AHEAD
As the calendar transitions to October, and we enter the final quarter of the year, all eyes will be on the U.S. labor data. China’s PMI reports on Sunday evening, which arrive on the heels of a massive equity rally, may set the week’s early trading tone. In the U.S., Friday’s non-farm payrolls report— and the other jobs data that precede it—may provide clues both on the economy’s direction, as well as how aggressively the Fed might cut interest rates later this year. FOMC Chair Powell is scheduled to speak today, and there are numerous scheduled appearances by other committee members throughout the week.
The rest of the U.S. agenda includes ISM manufacturing and services PMIs along with factory orders. In Europe, Germany’s CPI report lands today, followed by the wider Eurozone on Tuesday. With inflation easing, markets are pricing in two more potential rate cuts by year end. Minutes from the recent ECB meeting will be released on Thursday. Wednesday’s OPEC meeting may garner increased attention even though no output decisions are expected until the December gathering. Finally, Japan’s BOJ Summary of Opinions, Tankan surveys, and industrial
production round out the international calendar.
(Source: Schwab)