Market Focus for October 25th, 2024

Stocks reacted to rising U.S. Treasury yields, with the broad S&P 500 Index ending lower after six consecutive weeks of gains, influenced by expectations of a shallower Fed rate-cutting cycle. Large-cap stocks fared better than small- caps, and growth stocks outperformed value, with the tech-heavy Nasdaq Composite seeing modest gains. Tesla stood out as the top performer in the S&P 500 and among the “Magnificent Seven,” thanks to strong quarterly earnings and a positive sales outlook, which led to its best daily gain (22%) in over 11 years. In contrast, Apple weighed on the market after analysts downgraded their forecasts due to weaker sales projections for the iPhone 16.

DOW & TECH

THE DOW JONES INDUSTRIAL AVERAGE (DJIA) is the oldest continuing U.S. market index with over 100 years of history and is made up of 30 highly reputable “blue-chip” U.S. stocks (e.g. Coca-Cola Co., Microsoft).

The Dow ended the week down 2.68% at 42,114.40 vs the prior week of 43,275.91.

THE NASDAQ COMPOSITE INDEX tracks most of the stocks listed on the Nasdaq Stock Market – the second-largest stock exchange in the world. Over half of all stocks on the NASDAQ are tech stocks.

The tech-driven Nasdaq ended the week up 0.16%, closing at 18,518.61 vs. the prior week of 18,489.55.

LARGE, MEDIUM, & SMALL CAP

THE S&P 500 LARGE-CAP INDEX is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The S&P 500 is regarded as one of the best gauges of prominent American equities’ performance, and by extension, that of the stock market overall.

The S&P 500 ended the week down 0.96%, closing at 5808.12 compared to last week’s 5864.67.

THE S&P 400 MID-CAP INDEX is the benchmark index made up of 400 stocks that broadly represent companies with midrange market capitalization between $3.6 billion and $13.1 billion. It is used by investors as a gauge for market performance and directional trends in U.S. stocks.

The S&P 400 mid-cap ended the week down 2.84%, closing at 3107.51 compared to last week’s 3198.21.

THE RUSSELL 2000 (RUT) SMALL-CAP INDEX measures the performance of the 2,000 smaller companies included in the Russell 3000 Index. The Russell 2000 is managed by London’s FTSE Russell Group and is widely regarded as a leading indicator of the U.S. economy because of its focus on smaller companies that focus on the U.S. market.

The Russell 2000 ended the week down 2.99%, closing at 2207.99 compared to last week’s 2276.09.

U.S. COMMODITIES / FUTURES OVERVIEW

THIS WEEK’S ECONOMIC NEWS

Consumer spending up, jobless claims down:

In a light week for economic data, the Fed’s Beige Book reported minimal economic growth across most U.S. regions, noting a slight easing in worker demand and continued moderation in inflation. Despite the Beige Book’s lukewarm outlook, longer-term Treasury yields, which began rising in late September, continued their upward trend, with the 10-year U.S. Treasury yield reaching around 4.20%. Market expectations for Fed rate cuts decreased, anticipating 125 basis points of easing over the next year. Higher Treasury yields pushed tax-exempt municipal bond yields up, while primary issuance remained active. The investment-grade corporate bond market was weaker initially but stabilized, with lighter issuance and some oversubscription. High yield bonds declined amid macroeconomic challenges and higher yields, although the primary market remained active. It is worth noting that bank loans, benefiting from floating coupons, found technical support despite broader economic weaknesses.

Earnings Focus:

The 3rd Quarter 2024 earnings kicked off with 181 companies reporting earnings. Of the companies that have reported, 75% have reported earnings above analyst expectations. This is below the five but in line with the ten-year average of 77% and 75%. The projected Year over Year earnings growth rate for the S&P 500 is currently 4.4% while YOY revenue growth is 4.4%.When you examine the individual sectors, eight of the eleven sectors are estimated to report a year-over-year increase in earnings. The Technology and Communications sectors have the highest earnings growth rate for the quarter, while the Energy sector has the lowest anticipated growth compared to Q3 2013. The forward four-quarter P/E ratio of the S&P 500 is 21.9, which is above the thirty-year average. During the upcoming week, 169 S&P 500 companies (including 10 Dow 30 components) are scheduled to report results for the third quarter.

THIS WEEK’S HIGHLIGHTED STORY

What We’re Showing:

In 2024, the U.S. dollar has experienced notable depreciation against many major currencies due to anticipation of the Federal Reserve’s first rate cut since the onset of the COVID-19 pandemic (rates were cut by 0.5% in September 2024). Lower rates can reduce the dollar’s appeal relative to other currencies, particularly those in economies with higher interest rates.

Key Takeaways

From this dataset we can see that the U.S. dollar has depreciated the most against the Thai baht (THB), Polish złoty (PLN), and the Malaysian ringgit (MYR). At the other end of the scale, the U.S. dollar has appreciated the most against the Turkish lira (TRY) and the Mexican peso (MXN).

Pros and Cons of a Weaker U.S. Dollar

Here are some advantages of a weaker U.S. dollar:

Boosts U.S. exports: A weaker dollar makes U.S. goods and services cheaper abroad, which could help businesses in manufacturing and export-driven sectors. Increased tourism in the U.S. A weaker dollar could also attract more foreign tourists to the U.S., meaning more visitors to hotels, restaurants, and even national parks.

On the flipside, here are some disadvantages:

Costlier for Americans to travel: A weaker dollar means American tourist money doesn’t go as far in foreign countries (though it could be a good time to book that Mexico trip) More expensive imports: Goods that are manufactured abroad or rely on foreign parts may see price increases.