September 2024 Market Commentary

After a shaky start, September turned out to be another solid month for North American markets. The S&P 500 closed 89.77 points higher to finish at 5,738.17, whereas the TSX also moved higher by 610.64 points, breaking 24,000 for the first time during the month and finished at 23,956.82. Some of the key themes for September were global stocks reaching new all-time highs, while China unveiled new stimulus measures. The US Federal Reserve began its easing cycle with a larger-than-expected cut and conflict in the Middle East escalated, despite growing call around the world to end hostilities.

 

In the economy, resilience, and disinflation could be used to describe what’s happening, while the hard data in the U.S. remained upbeat, with both retail sales and industrial production expanding in August. The labour market dynamics appeared more mixed. The pace of job gains was weaker than anticipated again, though the unemployment rate edged lower to 4.2% and initial jobless claims fell to their lowest level in four months. Overall, U.S. output was still tracking at an above-trend pace for the third quarter. Headline inflation fell to 2.5% (y/y) in August, its lowest reading since early 2021. Core inflation remained at 3.2%, largely due to the sticky services CPI component. Across the pond, Eurozone economic data was generally subdued. The Composite PMI, a timely business survey, contracted in September for the first time since the start of the year.

 

The Bank of Canada announced its 3rd rate cut in its key overnight policy rate to 4.25% from 4.50% with Canada’s latest inflation report showing a steady decline to 2.5% from over 8.00% in 2022. The U.S. Federal Reserve reduced its target rate range by a larger-than-anticipated 0.5 percentage points (%pts), to 4.75-5.00%, and signaled further easing ahead. Even so, money markets were still discounting a more dovish trajectory for U.S. interest rate cuts over the near term and in Europe, the European Central Bank and Swiss National Bank both reduced their respective policy rates by 0.25% pts, to 3.50% and 1.00%. Meanwhile, the Bank of England remained on hold, with the base rate at 5.00%.

 

Equity markets continue to grind higher while rate cuts have been a nice lift for bond prices. Balanced investors are certainly reaping the rewards for their patience, after being sharply disappointed in 2022 when rates went up so quickly. We must admit that the momentum in the markets has caught us by surprise, as we underestimated the consistency in earnings that has been so evident. As a result, we’ve increased the year end price target for the S&P 500 from 5,600 to 6,100; an adjustment that client’s will no doubt appreciate. As we enter the 4th quarter of the year we anticipate geopolitical events to rattle investors, but if the markets continue to exhibit the kind of resilience it has since October 2022, both the equity markets and the bond market are shaping up to have a banner year. 

 

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