As pressure from the unwinding faded, markets regained their positive momentum, supported by economic growth, moderating inflation, and a speech by Jerome Powell, the Chair of the US Federal Reserve. Powell stated: “The time has come for policy to adjust. The direction is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Following Powell’s speech, the US Federal Reserve lowered its target range for federal funds by 50 basis points on Wednesday, September 18, 2024, joining the Bank of Canada, the European Central Bank, and other central banks in cutting rates. While equity markets got off to a weak start in August, by the end of the month they delivered positive returns for the quarter and double-digit-returns year-to-date.
AI stocks correcting.
Investors are sensitive to data releases and narratives from policy-makers. Of note is the beginning of September when markets rolled over for a short period in reaction to soft economic data from the US and China. This occurred when previous super-charged artificial intelligence (AI) winning stocks, such as NVIDIA, were correcting following its earnings release, and mounting concerns on the timing and size of potential returns from AI investments. However, by the second week of September, investor confidence in the investment climate and AI stocks returned, propelling markets higher.
A shift away from inflation.
With a moderated inflationary environment and cooling economic data, investor focus has shifted away from inflation and toward economic growth. It’s expected markets will remain reactive to data that increases or decreases the probability that central banks have been able to steer their economies into soft economic landings.
US election.
A topic on the minds of many investors is the US presidential election on Tuesday, November 5, 2024. While some investors try to position their portfolios around potential outcomes, it’s difficult to say with certainty what will happen, regardless of who wins. While it’s expected that volatility will increase, we’re not advocating for any changes to equity allocations. Looking back over the last 15 US presidential elections the average price return of the S&P 500 one year before and one year after the election has averaged about 9.6% and 8.8% respectively.
While there remains some risk and uncertainty around geopolitical tensions, the US election, and future economic growth, it’s key to remember that the current lower inflationary environment, positive economic and earnings growth forecasts, and policy easing cycles are supportive for equities.
