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October Market Commentary: A Volatile Start to the End of the Year? Thumbnail

October Market Commentary: A Volatile Start to the End of the Year?

Markets & Economy

September Recap and October Outlook

September saw equity markets close in positive territory, but with increased volatility. The VIX, often called the market's "fear index," rose to 16.73 from 15.00 the previous month. Throughout the month, it fluctuated between a high of 23.76 and a low of 14.90.

In September, there was an unexpected 50-basis point (0.50%) interest rate cut, marking a shift in monetary policy. While this fueled a significant downward move, new data, including a robust non-farm payroll report, may temper expectations for further cuts. As we move forward, the upcoming election and geopolitical tensions, particularly in the Middle East, are expected to keep markets volatile and investors cautious.

Let’s dig into the data:

  • Non-farm payrolls: 254,000 jobs added in September, far exceeding expectations. The unemployment rate dropped to 4.1%.
  • Inflation (CPI): Inflation decreased to 2.5% for the 12 months ending in August, down from July's 2.9%.
  • Consumer health: Consumer spending grew by 0.2% in August, while the personal savings rate remained solid at 4.8%.
  • Federal Reserve: Rates were reduced by 50 basis points, with the current target range between 4.75%-5.00%.

What Does It All Mean?

As of early October, the CME Fed Watch tool forecasts a 79.8% chance that the Fed will only cut rates by another 50 basis points before year’s end. The strong job numbers have reassured economists that a recession isn’t imminent, but it also signals that dramatic rate reductions are unlikely. Federal Reserve Chair Jerome Powell is expected to remain cautious, with inflation—especially driven by wage growth—continuing to shape his policy decisions.

It's also worth noting that while non-farm payrolls paint a healthy picture, the JOLTS report (Job Openings and Labor Turnover Survey) suggests the labor market is stabilizing. Layoffs remain low at 1%, and the quit rate is at its lowest since 2015, signaling that workers are hesitant to change jobs in the current environment.

Chart of the Month: Do Elections Matter to Markets?

Elections often bring uncertainty, which markets traditionally dislike. However, staying invested during election years, regardless of the outcome, tends to be a smart strategy over the long term. 

Source: Blackrock and Morningstar, September 2024

Equity Markets in September

  • S&P 500: +2.02%
  • Dow Jones Industrial Average: +1.85%
  • S&P MidCap 400: +0.98%
  • S&P SmallCap 600: +0.67%

Source: S&P Global. All performance as of September 30, 2024

Eight of the eleven GICS sectors ended September with positive performance. Consumer Discretionary led with a 7.02% return, while Energy was the worst performer, down 2.78%. Notably, the "Magnificent 7" tech stocks dominated, contributing to over half (55.2%) of the month's gains.

Bond Markets in September

  • The 10-year U.S. Treasury yield dropped to 3.78% from 3.91%.
  • The 30-year U.S. Treasury yield decreased slightly to 4.13% from 4.20%.
  • The Bloomberg U.S. Aggregate Bond Index returned 1.34%.
  • The Bloomberg Municipal Bond Index returned 0.99%.

The Takeaway

Interest rates are falling, but not as rapidly as initially hoped. With the uncertainty surrounding monetary policy and the upcoming election, it’s wise for investors holding cash to reevaluate their positions.

In times of uncertainty, the best strategy is to stay invested and focused on long-term goals. Now is the time to review your financial plan. Make sure you're maximizing tax-efficient investments, taking advantage of charitable giving strategies, and adjusting your portfolio to align with changing economic conditions.

Incorporating personal goals, sound investments, and a forward-looking view of the economy are all integral parts of what we provide to our clients. If you’re looking for guidance in navigating this volatile landscape, we're here to help you achieve your financial goals. Click here to schedule your complementary consultation.

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.