NEWSLETTER VOL 6 | OCTOBER 2024

Over the past month, major U.S. stock indexes have been volatile but up sharply—despite growing geopolitical risks in the Middle East and Ukraine, as well as the upcoming U.S. Election. Stronger-than-expected economic data combined with expectations for the Fed to continue down its rate cut path—albeit at a more modest pace than it did in September—has reignited the animal spirits of the market. The S&P 500 rose over 5% in the last four weeks to a fresh record high, while the Nasdaq 100 surged by 9%, driven by renewed optimism semiconductor stocks and AI-driven companies.

Tech Sector Rebounds 

Tech stocks have regained momentum after a brief correction, bolstered by strong earnings and improving market sentiment around AI technologies. Companies such as Nvidia and Advanced Micro Devices led the charge, while Taiwan Semiconductor Manufacturing Co.'s strong sales report further supported the sector's rebound.

Interest Rates and Federal Reserve Outlook 

The Federal Reserve’s September rate cut of 50 basis points marked a shift in policy direction, and the latest FOMC minutes and comments by Fed members suggest further cuts are likely, though at a more measured pace. The Fed is expected to reduce rates by 25 basis points in both November and December. While inflation stays persistent, particularly in services, and economic growth continues to surprise, the Fed remains cautious about moving too aggressively. 

Stronger-than-Expected Labor Market 

The labor market continues to show strength, with 254,000 new jobs added in September, well above expectations while the unemployment rate fell back to 4.1%. This robust growth has supported consumer confidence but has also raised concerns about wage inflation and the potential for renewed inflationary pressures, especially in the services sector.

Inflation Trends 

Inflation continues to trend lower but has remained sticky in some components, with September’s Consumer Price Index (CPI) showing a slightly higher-than-expected reading. Core inflation remains driven by services, despite easing in housing-related costs. In September, the CPI was up 2.4% year-over-year versus 2.5% in August, while the core-rate (excluding food and energy) rose by 0.1% to 3.3% from a year ago.

Geopolitical and Election Uncertainty 

Investors are closely watching escalating tensions in the Middle East and Ukraine, both of which have the potential to disrupt energy markets and broader economic stability. Oil prices have risen, hovering around $76 per barrel due to ongoing tensions in the Middle East. The geopolitical situation adds a risk premium to global energy markets.

Additionally, the tight U.S. presidential election race introduces another layer of uncertainty for markets. Policies on taxes, corporate regulation, and capital gains taxes could swing in either direction, depending on the outcome, potentially causing volatility, particularly in sectors sensitive to regulatory changes.

Balancing Risk & Opportunity

While we don’t attempt to predict specific outcomes, especially in such a complex and uncertain environment, we always assess the potential market impacts of significant events. By understanding the range of possible scenarios, we ensure that we are prepared to respond appropriately and safeguard portfolios when necessary.

Given the heightened risks stemming from geopolitical tensions, interest rate movements, and the upcoming election, we have prudently reduced some risks within portfolios. However, we remain constructive on the market’s overall direction and continue to find value in select opportunities that align with our longer-term outlook. This balanced approach allows us to manage short-term volatility while staying positioned for potential future gains.