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The Markets – September 30, 2024
IN THE MARKETS
Stocks surged to record highs this week, driven by optimism surrounding China’s new stimulus measures and growing demand for artificial intelligence (AI). The Dow Jones Industrial Average and S&P 500 Index benefited from strong performance in chemicals and materials stocks, fueled by hopes for a rebound in Chinese demand, while rising copper prices signaled a potential recovery in global industrial activity. Technology stocks outperformed as reports of a possible Intel takeover and NVIDIA’s CEO halting stock sales boosted sentiment, with Micron Technology’s positive AI demand outlook providing further momentum. However, U.S. consumer confidence fell sharply in August, according to the Conference Board, raising concerns about potential recession indicators. Mixed housing data also emerged, as new home sales declined in August, although a drop in mortgage rates led to a surge in refinancing activity, as reflected by the highest Mortgage Refinance Index since April 2022.
U.S. MARKETS
DOW & TECH
The Dow ended the week up 0.59% at 42,313.00 vs the prior week of 42,063.36.
The tech-driven Nasdaq ended the week up 0.95%, closing at 18,119.59 vs. the prior week of 17,948.32.
BY MARKET CAP
- Large-Cap: The S&P 500 ended the week up 0.62%, closing at 5738.17 compared to last week’s 5702.55.
- Mid-Cap: The S&P 400 mid-cap ended the week up 0.51%, closing at 3103.32 compared to last week’s 3034.34.
- Small-Cap: The Russel 2000 ended the week down 0.14%, closing at 2224.70 compared to last week’s 2227.89.
U.S. COMMODITIES / FUTURES OVERVIEW
THE VOLATILITY INDEX for 2024 (VIX)
VIX closed at 16.96 this week, a 5.0% Increase vs last week’s close of 16.15.
INTERNATIONAL MARKETS
U.S. MARKET NEWS
Inflation nears Fed’s target
Benign inflation data helped drive an early rally on Friday, as the Commerce Department reported that the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose just 0.1% in August, slightly below expectations. Year-over-year, the index increased by 2.2%, nearing the Fed’s 2.0% target and marking the smallest gain since February 2021. Personal incomes and spending also fell short of forecasts, suggesting easing inflationary pressures. The yield on the 10-year U.S. Treasury note remained steady for the week, while strong demand for new municipal bond issues limited secondary market activity. In the short-maturity investment-grade corporate bond market, about half of the week’s offerings were oversubscribed. A firmer macroeconomic outlook, partly driven by China’s stimulus efforts, supported sentiment in the high-yield bond market, although trading volumes remained average amid heavy new issuance.
INTERNATIONAL MARKET NEWS
Europe
The pan-European STOXX Europe 600 Index rebounded, gaining 2.69% as slowing business activity fueled hopes for interest rate cuts, while China’s economic stimulus measures also boosted sentiment. Major stock indexes followed suit, with Germany’s DAX surging 4.03%, France’s CAC 40 rising 3.89%, Italy’s FTSE MIB climbing 2.86%, and the UK’s FTSE 100 advancing 1.10%. In the eurozone, business activity unexpectedly contracted in September, with the Composite PMI Output Index falling to 48.9 as new orders dropped and the Paris Olympics effect faded, particularly affecting services and manufacturing. German business activity hit a seven-month low, hinting at a potential recession. Meanwhile, UK private sector activity continued to expand, with the PMI at 52.9, although inflation eased to a 42-month low. German business confidence also fell in September, with the ifo Institute’s index dropping to 85.4, while consumer sentiment slightly improved to -21.2.
Japan
Japan’s stock markets rose over the week, with the Nikkei 225 Index climbing 5.58% and the TOPIX Index up 3.7%, driven by dovish comments from the Bank of Japan (BoJ) that weakened the yen and China’s stimulus measures to counter its sluggish economy and weak housing market. Japan’s export-heavy economy, especially companies with ties to China, benefited from the optimism surrounding these announcements. BoJ Governor Kazuo Ueda indicated that the central bank will take a patient approach to raising rates, leading the 10-year Japanese government bond yield to drop to 0.80%. Meanwhile, the Tokyo-area core consumer price index (CPI) rose 2.0% year-over-year in September, down from August’s 2.4%, while Japan’s private sector continued expanding, with services growth offsetting a slight contraction in manufacturing output.
China
Chinese stocks surged following Beijing’s announcement of a sweeping economic stimulus package. The Shanghai Composite Index jumped 12.81%, and the blue-chip CSI 300 soared 15.7%, marking its biggest weekly gain since 2008. In Hong Kong, the Hang Seng Index rose 13%. The People’s Bank of China (PBOC) cut its reserve requirement ratio for most banks by 50 basis points, its second cut this year, and reduced key policy rates, including a 20-basis-point cut to the seven-day reverse repo rate and a 30-basis-point cut to the medium-term lending facility rate, the largest since 2016. These moves were part of a broader effort, announced at a rare press conference by PBOC Governor Pan Gongsheng, to revive China’s sluggish economy. Additional measures included rate cuts for existing home mortgages and lowering the nationwide down payment ratio for second home purchases. China’s top leaders also pledged to stabilize the property market and maintain real estate prices, with plans to issue special sovereign bonds worth RMB 2 trillion (USD 284.4 billion) as part of the fiscal stimulus, focusing on boosting domestic consumption.
HIGHLIGHTED STORY
Crushed by Deficits
September 24, 2024
What We’re Showing:
Under Joe Biden and Kamala Harris, federal spending and debt are at the highest levels in US history outside of wars and recessions. Here’s how public-held debt has compared to the Gross Domestic Product dating back to 1790. This year debt will hit 100% of GDP, a level seen only once before, at the end of WWII.
ADDITIONAL MARKET HIGHLIGHT
Government Debt Projections for G7 Countries
September 25, 2024
What We’re Showing:
On Sept. 18, 2024, the U.S. Federal Reserve reduced its benchmark interest rate by half a percentage point to a range of 4.75% to 5%. This move is expected to decrease short-term borrowing costs, including those for U.S. government debt.
When the Fed lowers the federal funds rate, it leads to lower rates on Treasury bills and other short-term government securities, which in return reduces its borrowing costs on newly issued short-term debt. While this reduction in rates will help reduce debt-servicing costs, the U.S. is still projected to see the biggest increase in its gross debt of all G7 nations over the next five years.
This graphic uses data from the International Monetary Fund’s (IMF) April 2024 Editon of the World Economic Outlook to show how the U.S. stacks up against its G7 counterparts in terms of projected gross debt as a percentage of GDP in 2024, and how debt is forecasted to change by 2029.
Key Takeaways
The U.S. is predicted to see the greatest accumulation in gross debt over the next five years, with the IMF projecting an increase of nearly 11 percentage points from 2024 to 2029. In 2023, the U.S. made up over a third of the total global government debt at $33.2 trillion, and now likely holds an even larger share as in July of 2024 the country hit a record $35 Trillion in government debt. While the U.S. is projected see the greatest increase in government debt out of the G7 countries by a wide margin, it typically has more leeway in sustaining higher debt levels since it is the supplier of the world’s primary reserve currency.
On the other hand, Japan is the G7 country with the greatest gross debt burden, with a projected debt-to-GDP ratio of 254.6% in 2024. Even if the country is forecasted to see a decline of three percentage points in its share of debt-to-GDP, Japan’s projected debt-to-GDP ratio in 2029 will still be a staggering 251.7%.
Economic stagnation, aging population, and multiple national disasters are some factors that contribute to the Japanese government’s high debt levels.
Only Japan, Canada, and Germany are predicted to see gross debt levels fall in the next five years. Canada is expected to see the greatest decrease in debt-to-GDP levels in the next five years with a decline of nearly 10 percentage points, while Germany is forecasted to have the lowest debt at just 58% of its GDP in 2029.