US STOCKS closed a volatile session mixed last Friday, as uncertainty prevailed following Thursday’s session rally, which was fuelled by the Federal Reserve's (Fed) oversized interest rate cut (50 bps). However it ended the week on a winning note, noticeably helped by the 50bps cut last Wednesday. The S&P 500 up 1.56%, the Nasdaq 100 advanced 2.04% and the Dow average added 1.52%.
All sectors in the S&P 500 posted gains with the exception of healtchare (-0.35%), consumer staples (-0.59%) and real estate (-5.56%). For the week, leading the gains were communication (+4.81%), energy (4.04%) and utilities (3.17%) as investors played catch-up with sectors that had softened in the last 30 days.
The benchmark S&P 500 hit its first closing all-time high in two months last week after the Fed unveiled a hefty 50-basis point rate cut, kicking off the first US monetary easing cycle since 2020.
The index is up 0.8% so far in September, historically the weakest month for stocks, and has gained 19% year-to-date.
We believe the market rally could be tested if economic data fails to support expectations that the economy is navigating a “soft landing”, during which inflation moderates without impacting growth.
Stocks fare much better after the start of rate cuts in such a scenario, as opposed to when the Fed cuts during recessions. The market could also become more sensitive to the close presidential election race between Republican Donald Trump and Democrat Kamala Harris. Recent polls show a virtually tied race. The US presidential election will start to be more at the forefront unless US economic data deteriorates considerably.
We have been positioning and have been cautiously going into the market purchasing fundamentally driven stock. Post interest rate cut, we still maintain a cautionary stance as historically September has always been a volatile month for the US markets. Historically also, the markets see momentum building up in October and run-up to the US presidential election. We maintain our view of the US economy indicators are still pointing to a soft landing for the US economy.
MARKET CATALYSTS
> US: Last week, S&P500 (1.56%), Nasdaq Composite, (2.13%), Dow Jones (1.52%). On daily, S&P500 (-0.19%), Nasdaq Composite (-0.36%), Dow Jones (0.09%). Top gainers were INTC (11.09%), CRWD (15.71%), PYPL (9.5%).
> Europe: UK FTSE (-1.19%), Germany DAX (-1.49%), France CAC40 (-1.51%).
> Asia: China Shanghai (0.03%), Japan Nikkei 225 (1.53%).
MACRO CATALYSTS
> US: In September 2024, the average 30-year fixed mortgage rate in the US fell to 6.09%.
> Europe: In September 2024, consumer confidence in the Euro Area rose by 0.5 points. Retail sales in the UK jumped 1% MoM in August 2024, while Germany's producer prices declined 0.8% YoY.
> Asia: In September 2024, the Bank of Japan held its key interest rate at 0.25%, while China's central bank kept lending rates steady at 3.35%. Hong Kong's annual inflation rate was 2.5% in August 2024.
This article is contributed by Chief Investment Officer’s Office of Berjaya Mutual Bhd.
