Last Week on Wall Street – September 28th, 2024

S&P 500: +0.62% DOW: +0.59% NASDAQ: +0.94% 10-YR Yield: 3.75%

What Happened?

The Dow Jones Industrial Average reached a new high on Friday, boosted by diminishing inflation and strong performances from key stocks like Amgen and Chevron. The three major indices ended the week in positive territory, with the Nasdaq leading at a 1% gain. This positive movement came amidst a broader context of resilient markets, with the PCE price index’s year-over-year increase of 2.2% affirming expectations for continued monetary easing. Despite mixed results across U.S. markets, significant gains in China’s markets were spurred by governmental economic stimuli, reflecting a global economic stabilization effort.

Sector-wise, the week ended positively with Materials(+3.5%), Consumer Discretionary (+2.3%), and Industrials (+1.6%) experiencing notable gains, contrasting with declines in Healthcare (-1.1%) and Energy (-1.0%). This sector performance highlights the varied impact of broader economic trends on different market segments. As the market heads into another week, investors are watching closely for upcoming employment and manufacturing data, which could influence market dynamics and Federal Reserve policy decisions in the near term.

Key Fed Inflation Gauge At 2.2% In August, Lower Than Expected

The PCE price index, a measure the Fed focuses on to measure the cost of goods and services in the U.S. economy, rose 0.1% for the month, putting the 12-month inflation rate at 2.2%.
Excluding food and energy, core PCE rose 0.1% in August and was up 2.7% from a year ago.
The all-items inflation gauge was below Wall Street estimates and the lowest since early 2021.

The key takeaway – In August, the U.S. personal consumption expenditures (PCE) price index increased by 0.1%, lowering the annual inflation rate to 2.2%, its lowest since February 2021, and closer to the Federal Reserve’s 2% target. Core PCE, which excludes volatile food and energy prices, rose by 0.1%, marking a 2.7% year-over-year gain. Despite personal income and spending growth falling short of expectations, wage gains and a high savings rate are expected to sustain consumer spending. The narrowing trade deficit and growing inventories signal strong economic momentum in Q3. Markets responded favorably, reflecting optimism about inflation control, though economists expect the Fed to proceed cautiously with further rate cuts given strong economic fundamentals.

Low Weekly US Jobless Claims, Robust Corporate Profits Highlight Economy’s Resilience

Weekly jobless claims fall 4,000 to 218,000
Continuing claims increase 13,000 to 1.834 million
Corporate profits and GDP revised higher in second quarter

The key takeaway – U.S. unemployment claims dropped to their lowest in four months at 218,000, suggesting a robust labor market. This drop from the expected 225,000 demonstrates resilience amidst economic concerns. Additionally, corporate profits for Q2 outpaced initial projections, indicating potential support for further employment and investment growth. Despite this economic strength, these factors make the prospect of the Federal Reserve implementing another significant rate cut in November less likely. Economists suggest that the solid economic backdrop may limit the need for aggressive monetary easing. Furthermore, revised economic data revealed stronger corporate profits and household incomes, contributing to a more optimistic outlook for the U.S. economy’s growth and stability in the labor market.

China Is Assembling an Economic Bazooka, Piece by Piece

China introduced significant economic stimulus measures, including central bank rate cuts, after months of hesitation to stabilize its struggling economy.
The Shanghai Composite Index saw an 11% increase over the week, its largest gain in four years
Structural problems like an aging workforce, real estate crisis, and trade tensions continue to weigh heavily on China’s economic outlook.

The key takeaway – China has escalated its economic stimulus efforts this week, shifting from gradual support to more forceful measures. The central bank introduced significant interventions, including rate cuts and pledges of further support, which have ignited a rally in Chinese markets, with the Shanghai Composite Index rising 11% in a week. These moves aim to counteract persistent challenges like shrinking tax revenues, housing market declines, and slowing retail sales. However, long-term structural issues, such as overcapacity, aging demographics, and financial strain on local governments, remain significant obstacles for sustained growth.