Last week continued the market's ongoing trends and narratives, marking the sixth consecutive week of gains for the U.S. stock market and bringing more all-time highs. We also saw further evidence of stronger-than-expected economic performance, including Netflix’s positive third-quarter earnings results last Friday. Meanwhile, the upcoming presidential election remains a key driver of analysis and speculation in the financial press.
What makes these recent gains notable is that September and October are historically challenging months for the stock market, compounded this year by an uncertain and closely contested election. Additionally, one of the more positive short-term drivers for the market has been the expectation of deeper and faster interest rate cuts by the Federal Reserve. While the Fed did cut rates by 0.5% last month, the pace and depth of cuts have been less aggressive than anticipated, partly due to stronger economic growth. For instance, last week the Atlanta Fed’s GDPNow model raised its Q3 GDP projection yet again to 3.4%, up from 3.2% the previous week.
Looking ahead, this week marks the peak of the third-quarter earnings season, and we can also expect an influx of campaign ads as the election approaches. Economic data releases this week include housing sales and durable goods. As for the broader outlook in the coming weeks and months, the U.S. economy appears to have enough momentum to withstand any pre-election economic pause, as some firms hold off on major commitments until the election outcome is clear. Additionally, certain data may show anomalies due to the ongoing impacts from Hurricanes Helene and Milton.
Momentum in both the economy and markets remains positive as we head into the final months of 2024. Another encouraging short-term factor is the seasonal trend now turning in favor of the market as late October marks the beginning of one of the historically strongest three-month periods for stock market performance.
On another positive note, although some argue that short-term interest rates are restrictive given their nominal levels above current inflation, overall financial conditions remain supportive of the economy and markets. Both fiscal and monetary policies have injected substantial liquidity into the system. Stocks are at all-time highs, corporate bonds are in high demand, and it’s not just stocks—gold is also at all-time highs, and Bitcoin is approaching similar levels. Additionally, private net worth is also hitting new records, reinforcing a virtuous cycle.
Bottom line, despite the negative headlines dominating the news, the overall economic and market backdrop remains positive. In turn...
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