Weekly Newsletter 9/20/24

Good afternoon,

U.S. stocks mostly lower today following a big Thursday rally that saw the Dow and S&P500 close at new record highs and the Nasdaq post its best session since February 2023. The week’s upside has been a function of an aggressive start to the Fed’s interest rate easing with a 0.50% rate cut, along with continued data to support a described “soft landing.”

A rate cut was expected though the 50 bp was a surprise to many. I do find it interesting the Fed Chairman said, “The economy is strong” and “We concluded that this was the right thing for the economy and the people we serve.” Normally when an economy is strong you keep rates as is or raise slightly to curb the inevitable inflation.

Some chatter about favorable implications for stocks from start of Fed rate cut cycle. A leading U.S. commercial bank noted that in each of the last five easing cycles, The S&P500 has been higher on a 1M, 3M, 6M and 12M basis. They also pointed out the last five easing cycles have seen the S&P500 add 2.5% over the next month, 6.1% over six months, and 4.5% over the following 12 months. Much of the focus has been on the favorable combination of Fed rate cuts and an economic soft landing.

Negative September seasonality still one of the biggest bearish talking points in the market. You may have heard us refer to “corporate stock buyback” in the past. A buyback is a company's purchase of its outstanding stock shares. Buybacks reduce the number of shares available on the open market. Companies usually buy back shares of their stock to increase the value of the remaining shares by reducing the supply of them. They may also buy back shares to prevent a major shareholder from taking a controlling stake in the company. Sometimes companies time it right and buy when their shares are low, however, they can mess up and end up paying more for their shares than they might have if they waited. I personally prefer dividends over buybacks, but no one asks me just like Jerome Powell didn’t call to get my opinion on interest rates. The corporate buyback blackout window, which began last Friday is another widely discussed overhang on risk sentiment. Buybacks, the biggest source of U.S. equity demand, are expected to decline by ~35% during the closed window after recently running above $6.5B per day. On a more positive note, from a flow perspective, JP Morgan has estimated that over the next two weeks, there could be ~$125B of month- and quarter-end demand for equities from multi-asset investors.

• August retail sales rose, ahead of expectations for a decline
• Jobless claims fall and firms reported an increase in prices
• August housing starts and building permits beat expectations and builders to have a positive view for future new home sales for the first time since May.
• Big tech set to provide another key earnings season tailwind but outperformance narrowing…expected S&P 500 earnings to increase 4.9% y/y in Q3, down from the 7.8% expected at the start of Q3.
• Value stocks typically do well the six months following a first rate cut.
• Short term rates have fallen with the Fed cut, however, longer term rates remain nearly the same.

This last bullet point will be interesting to watch as many mortgage rates are pegged to the 10-year Treasury rate. For instance, in Q2 of 2021 U.S. homebuyers generated $1.22T (trillion…~$1,220,000,000,000 worth of mortgages…in just a 90-day period!) The 10 yr Treasury yield was less than 1% at the time. Fast forward to the same period in 2023, with the 10 yr at 4%+, mortgage originations fell to $374B…a 70% drop. The buying and selling of homes in the U.S. is a major economic input contributing 15-18% of our entire GDP.

We here in SWFL have another month (at least) of heat and humidity, however, other parts of the country have a season called Fall or Autumn for you sophisticates which begins on Sunday. Whatever you have planned, please enjoy and thank you as always for your time.

The link below has additional financial information.

https://www.raymondjames.com/evangelista/resources

“There is a time in the last few days of summer when the ripeness of autumn fills the air.”--Rudolfo Anaya

Thank you,

Kyle

KYLE CHRISTIANSON, CFP^®

Financial Advisor

Raymond James & Associates, Inc.

1421 Pine Ridge Rd, Ste 300

Naples, FL 34109

Toll Free (800) 843-2025 | Direct (239) 513-6525 | Main (239) 513-6500 | Fax (239) 596-5474

Kyle.Christianson@RaymondJames.com

Any opinions are those of Kyle Christianson and not necessarily those of RJA or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. This is not a recommendation to purchase or sell the stocks of the companies mentioned. Leading Economic Indicators are selected economic statistics that have proven valuable as a group in estimating the direction and magnitude of economic change. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Individual investor's results will vary. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Prior to making an investment decision, please consult with your financial advisor about your individual situation.