Monthly CIO Update | October 2024

MARKET WRAP

US equities finished higher in September with the S&P500 (+2.0%) and DJIA (+1.9%) up for the fifth straight month. The Mag 7 all posted positive returns in the month as well, though results were mixed on a relative basis with only TSLA, META, AMZN and MSFT outperforming the S&P500.

Consumer Discretionary (+7.0%) and Utilities (+6.4%) led all sectors in September with Energy (-2.8%) the worst performer for the second straight month behind falling oil prices.

Better-than-expected earnings from JPMorgan and Wells Fargo led both the S&P and DJIA to fresh record highs to close out the second week of October; however, expectations heading into the remainder of Q3 earnings season are low. The current consensus earnings growth rate of the S&P500 sits at 4.1% y/y (vs. 12% y/y growth in Q2). As of October 11^th, the Information Technology, Communication Services and Healthcare sectors are expected to see the highest earnings growth in the quarter (+14.9%, +10.3% and+10.0%, respectively) while Energy is expected to remain a significant drag on index earnings (-24.3%).

The Fed began its easing cycle with a front-loaded 50bps rate cut at their September meeting. Since then, a September jobs report that topped all estimates and a hotter than expected CPI print has kept the soft-landing narrative intact while forcing investors to reprice rate cut expectations. The market now sees a slower pace of cuts, with 50bps of additional cuts forecasted this year and a target rate of ~3.50% by the end of 2025.

Short-term Treasury yields declined by ~50bps reflecting the Fed’s half a percentage point rate cut, with the yield curve continuing to steepen (10Y-2Y spread has widened to 13bps as of 10/11).

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INVESTMENT OUTLOOK

ELECTIONS: With the Fed at the onset of a challenging easing cycle, the outcome of the November US elections could have significant impacts to the outlook for US growth, inflation and monetary policy. From an investment perspective, while long-term secular trends, company fundamentals and the macroeconomy hold meaningfully more weight in our forecasts, elections can provide opportunities for portfolio adjustments. As the most material policy changes are likely to occur only under a unified government, we lay out some of the key legislative differences and investment implications of either party sweeping below:

CHART OF THE MONTH

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