There is nothing more distasteful to the financial markets than uncertainty and that is precisely what may temporarily emerge from Tuesday’s election. If fact, the slight pullback this past week may be a precursor of things to come. That said, given the tailwind the U.S. economy is currently experiencing, we view any sizable pullback as a buying opportunity. This should be interesting.
- Sell in May and go away has long been the mantra on Wall Street as historically the six months ending October 31st provide a fraction of returns of the other six. However, that did not hold true for this past period as the S&P 500 returned 13.30% to investors over that period. We always say that it is time in the market not timing of the market that dictates long-term success.
- What has gone virtually unnoticed is the backup in U.S. Treasury Yields and mortgage rates (see below for mortgage rates) as the interest paid on the benchmark 10-year Note has risen from 3.59% at the close on September 17, one day before the Fed cut rates by 0.50%, to 4.37% as the dust settled Friday. That may not sound like a lot, but for every $100,000 that’s an extra $780 paid out by the Treasury to investors.
- Caught in the shadow of the upcoming U.S. Presidential Election on Tuesday is the two-day meeting of the Open Market Committee of the Federal Reserve this coming Wednesday and Thursday. After a 0.50% reduction in rates at its most recent meeting, our baseline case is for an 0.25% cut. However, within its post-meeting policy statement and given the relatively strong economic data and persistent inflation numbers, don’t be surprised if the fed strikes a hawkish tone.
- According to filings with the Federal Election Committee and as reported by Bloomberg, “11,000 Political Groups Spent $14.7 Billion to Influence the 2024 Election.” If we truly “drained the swamp” Washington DC might become our newest National Park!
- Several large-cap tech stocks, including Apple (AAPL), Microsoft (MSFT) and Advanced Micro Devices (AMD) sold off this past week as investors were not disappointed by the earnings the three posted but rather the outlook. We believe that to the extent that they as well as others were impacted is unwarranted and as the dust settles would look to establish or add to positions. In our opinion, the monetization of Artificial Intelligence (AI) is a when and not if question.
“It’s The Economy…”
Non-Farm Payrolls (approximately 80% of the U.S. workforce) rose by 12,000 during September, substantially below the consensus estimate of 125,000. Payroll numbers for the prior two months were revised to 223,000 and 78,000 from 254,000 and 159,000 during September and August, for a net loss of 112,000. The rolling three-month average fell to 104,000 from 185,666, from what most economists believe is a result from Hurricanes Helene and Milton along with the strike at Boeing. Private Sectorcompanies shed 28,000 jobs while the Public Sector added 40,000. Payroll data was influenced by private education and health services (58,000), leisure and hospitality (-4,000) and information technology (3,000) as temporary jobs fell (-48,000). The Unemployment Rateremained at 4.1% during October as compared to one month prior. The Unemployment Rate had gotten as low as 3.4% in April 2023. Average Hourly Earnings rose 0.37% or $0.13 to $35.46 during October from $35.33 one month prior and by $1.36 or 3.99% from $34.10 y/y. In fact, the y/y pace of earnings rose from 3.83% during August to 3.99% in October. (Source, U.S. Department of Labor)
The Bureau of Economic Analysis reported that Personal Incomerose 0.3% during September (5.5% y/y), this after rising 0.2% in August. The Wage & Salary Component rose 0.5% in September (6.4% y/y), after rising 0.5% in August. PersonalSpending (PCE)which represents approximately 70% of economic activity rose 0.5% during September (5.3% y/y) after rising 0.3% during August. Personal Savings(Disposable Personal Income Less Outlays) fell to an annualized rate of 4.6% during September from 4.8% during August. The PCE Chain Price Index, rose 0.2% in September after rising 0.1% in August (2.1% y/y). The y/y increase marks the lowest since February 2021. (Source, Bureau of Economic Analysis)
Initial Claims for Unemployment Benefits for the week ending October 26thfell 12,000 to 216,000 from 228,000 the prior week, which was revised higher by 1,000.The four-week rolling average fell 2,250 to 236,500 from 238,750, which was revised up by 250. Continuing claims for the week ending October 19th fell 26,000 to 1,862,000 from 1,888,000 the prior week, which was revised lower by 9,000. The continuing claims four-week average rose 10,750 to 1,869,250 from 1,858,500. (Source, U.S. Department of Labor)
Third Quarter Gross Domestic Product (first estimate), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, rose at an annualized rate of 2.8%, down from 3.0% during Q2 and ascompared to 2.7% y/y. 2.5% during Q2. The PCE PRICE INDEX EXCLUDING FOOD AND ENERGY rose at an annualized rate of 2.2% during Q3 (2.7% y/y), down from2.8% during Q2. (Source, U.S. Bureau of Economic Analysis)
The Conference Board’s Consumer Confidence Indexrose to 108.7 (9.7% y/y) during October from 99.2 September, revised from 101.9. The present situation indexrose to 138.0 in October from 123.8 (-0.4% y/y) while the expectations componentrose to 89.1 during October from 81.7 during September (226% y/y). Those surveyed saying that jobs are “hard to get”fell to 16.8% of respondents during October as compared to 18.6% in September while those claiming that jobs were “plentiful”surged to 35.1% from 31.3% over those same months.
Upcoming Economic Reports scheduled to be released this week include the following: Monday, September Factory Orders; on Tuesday, September Trade Balance and the ISM October Service Sector Index; on Thursday, the Weekly Report of Initial Claims for Unemployment, September Consumer Credit and September Wholesale Inventories; and, on Friday, Preliminary November Consumer Sentiment from the University of Michigan.
The Current Earnings Season is now in full swing. The following represents some companies scheduled to report that may influence the financial markets– Zoetis (ZTS), CVS Health (CVS), Gilead Sciences (GILD), Zillow (Z), Duke Energy (DUK), Expedia (EXPE), Moderna (MRNA) and Yeti (YETI).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
