Knowledge Center
Market Currents – 9/12/24
- Resilience Amidst Volatility. August delivered a rollercoaster ride for the stock market. The sharp, fast sell-off early in the month, blamed on the unwind of a large, Yen-based “carry” trade, tested investors’ resolve. A quick recovery, though, propelled the markets to a solid finish. Notably, the month included both the best and worst trading days since 2022, separated by just two days. Such market behavior is not historically unusual, and highlights the unpredictable and challenging nature of timing short-term market swings. Amidst this volatility, value stocks continued their outperformance over growth stocks for the second consecutive month. Meanwhile, falling interest rates provided a tailwind for the fixed income market, driving bond prices higher and contributing to a strong month for bond investors.
- Rising Growth Anxiety. The economic landscape is normalizing after post-pandemic distortions, giving rise to a present “growth scare.” The labor market has softened, and unemployment has risen modestly. Overall economic activity remains relatively resilient, however, and the scourge of inflation appears to be firmly on the retreat. Current data suggest a “soft landing” remains as the most likely scenario.
- Powell’s Pivot Signals Global Easing. The global monetary policy backdrop is shifting decisively towards easing, as central banks around the world embrace a synchronized cycle of rate cuts. The Bank of Canada and European Central Bank have already taken action in September, and the Federal Reserve is widely expected to follow suit at its upcoming meeting. Fed Chair Powell’s rhetoric has notably shifted, placing greater emphasis on the employment aspect of the Fed’s dual mandate, and signaling a broader focus beyond solely combating inflation.
- Tech Sector Insight. The recent earnings reports from major AI-related companies offered a mixed bag, with some experiencing margin pressures from elevated spending and others falling short of revenue guidance. Still, the overarching sentiment from management teams remains decidedly upbeat. There is a furious arm’s race ongoing among major tech firms like Meta, Google, Microsoft, and Amazon to develop AI technologies, bolstering not only chip company Nvdia, but multiple others throughout the tech ecosystem. An emerging concern is when and how AI will be monetized to justify the intense current spend. For the moment, investors are giving the hyperscalers and others a pass on the matter.
- Market Outlook: Volatility and Opportunity. Historically, September has been the most challenging month for the stock market. Nonetheless, market fluctuations are a natural part of the investment landscape, and can create opportunities for discerning long-term investors. In the near term, we expect continued market volatility as various uncertainties persist. Looking further ahead, our outlook grows more constructive. Anticipated Federal Reserve easing, declining interest rates, cooler inflation, a probable soft economic landing, steady corporate performance, and potential post-election stabilization are setting up for a promising environment for investors. That said, caution is warranted as stock valuations remain generally elevated. We remain vigilant, actively seeking opportunities that may emerge from this volatility.