September 2024 Market Commentary

FOMC September Meeting in Sight

• Stocks continued to march higher in August, with a noticeable change in leadership underway.
• Seasonality may disappoint stock investors in September and October.
• Manufacturing data continues to worsen.
• All eyes are on the Fed this month.

The S&P 500 Index posted its fourth consecutive monthly gain in August. Non-U.S. markets fared well last month, as did the bond market, but after posting a double-digit return in July, U.S. Small Cap stocks retreated in August. Nine of the 11 S&P 500 index sectors generated positive results in August, with Energy and Consumer Discretionary declining. Five sectors, Financial Services, Utilities, Consumer Staples, Health Care, and Real Estate, gained at least 5% in the month.

"Risk means the chance of being wrong - not always in an adverse direction, but always in a direction different from what we expected."

-Peter Bernstein

Much Better Than Feared

For the first eight months of 2024, global stock markets showed remarkable resilience and strength, defying many analysts' expectations. Despite global economic uncertainties, including fluctuating interest rates and geopolitical tensions, major indices including the S&P 500 Index, the Dow Jones Industrial Average, and the NASDAQ Composite Index reached new all-time highs. In addition, many European and Asian stock indices churned out 10+% year-to-date gains at the end of August. The global surge in market valuations can be attributed to several factors, including better than expected corporate earnings, mega investments in Artificial Intelligence solutions, and strong consumer spending.

As of August 30^th, the S&P 500 Index stood at 5,648, surpassing the highest year-end price target for 2024 set by the 20 Wall Street strategists and economists listed below. Through the first eight months of the year, the index increased 18%, easily exceeding the miniscule 2% average gain forecasted by the group. The journey to 5,648 was almost entirely upward, marked by only a single monthly dip in April and a short period of turbulence in late July and early August. This brief rough patch was driven by growing recession concerns and the unwinding of the yen carry trade, while unsettling the markets.

[i]

Leaderboard Changes

In a recent post, Charles Schwab's Chief Investment Strategist, Liz Ann Sonders, indicated the upward trend in U.S. equities remained intact in the second half of 2024, but "leadership has moved from behemoths to minnows." Small Cap stocks, represented by the S&P 600, underperformed Large Cap stocks by 16% in the first half. But in the first two months of the second half, the S&P 600 has outperformed by 6%. Mega Cap stocks, represented by the S&P 50, the darlings of the first half, flipped to being underperformers in the second half. A meaningful sector rotation occurred, with first half relative laggards Utilities, Financials, Consumer Staples, Health Care, Materials, and Real Estate outgaining the S&P 500 Index in the second half. First half sector leaders Technology and Communications Services are now trailing the S&P 500 Index in the second half.

[ii]

Stock Market Seasonality

By many measures, September is the worst performing month of the year for stock market investors. Looking back at monthly returns over the past 10 years, September is the only month with a negative average return.  At minus 2.3%, the drawdown is negligible, but for investors conditioned for positive returns, the drop may cause some angst. As if on schedule, the S&P 500 Index dropped by 2.1% on the first trading day of September, sparking widespread discussions about a potential major market correction. While one day is not a trend, investors should brace for the first monthly decline since April. If history is a guide, the S&P 500 Index will finish lower this month. Since 1928, the S&P 500 Index has finished higher in September only 43% of time with an average decline of 1.2%.[iii]