As we enter October, the market landscape is shifting, presenting both challenges and opportunities for investors. In today’s complex financial environment, effective financial planning extends beyond merely picking investments or setting up retirement accounts. With the final quarter of 2024 upon us, it’s crucial to assess how recent economic developments could impact your financial goals.
A comprehensive financial plan should encompass a range of critical topics such as tax optimization, estate planning, retirement income strategies, risk management, etc. If you’re a DIY investor managing your own finances, are you truly confident in your ability to navigate these complexities? Simply checking off boxes may leave gaps in your strategy that could hinder your long-term success.
Equally important is understanding whether you’re receiving genuine guidance. Many individuals mistakenly believe they have a financial advisor when, in fact, they may be working with a broker focused more on transactions than on holistic financial planning. If your “advisor” isn’t addressing key areas essential to your financial well-being, it’s time to reassess your relationship.
This month, we’ll explore the market’s volatility, key economic indicators, and actionable insights to help you navigate these challenges. Let’s dive into the data and prepare for what lies ahead, ensuring you’re equipped to build a more secure financial future!
Key Economic Insights You Should Know for October
September closed with positive returns in large stock market indicies, but with increased volatility. The VIX, also known as the “fear index,” spiked to 16.73, up from 15.00 last month. Intramonth, it ranged from a high of 23.76 to a low of 14.90, reflecting heightened market tension.
A 50-basis-point interest rate cut in September marked the beginning of a long-awaited loosening of monetary policy. However, with a strong non-farm payrolls report and persistent geopolitical tensions in the Middle East, investors should brace for continued volatility in the months ahead. The upcoming election is another factor that may keep markets jittery.
Let’s get into the data
- Non-farm payrolls increased by 254,000 jobs in September. The Labor Department’s Bureau of Labor Statistics report was well above consensus expectations. The unemployment rate dropped to 4.1%.
- Inflation as measured by CPI decreased further. CPI rose 2.5% for the 12 months ended in August, down significantly from the July reading of 2.9%
- Consumers and their savings are healthy. Consumer spending increased 0.2% in August, and the personal savings rate stood at 4.8%.
- The Fed was decisive on rate cuts. Rates were slashed by 50 basis points, with the current target rate now 4.75%-5.00%.
What Does the Data Add Up To?
As of October 4th, the CME Fed Watch tool is suggesting a target rate probability of 79.8% that the Fed will only cut rates by a further 50 basis points by the end of the year.
The extremely strong labor market reading from September has served to reassure economists and market participants that the economy is not nearing a recession. However, it likely puts an end to the hopes that rates will drop precipitously and quickly. Powell will continue to be cautious, and with wage gains also robust in September, he will likely keep inflation front and center in making future rate cut decisions.
Strong non-farm payrolls don’t tell the entire story. The JOLTS report, Job Openings and Labor Turnover Survey, reported that the labor market is close to equilibrium. Layoffs are still low at 1% in August, and workers quitting their jobs are at the slowest pace since 2015, which signals a lack of confidence in finding a better job.
Chart of the Month: Do Elections Matter to Markets?
Elections bring uncertainty, and as the received wisdom goes, markets hate uncertainty. However, remaining invested regardless of the outcome is definitely the most advantageous idea.
Source: Blackrock and Morningstar, September 2024
How Did the Stock Market Perform in September?
September was a month of mixed results in the equity markets. The major indices saw gains after early declines, but volatility reigned throughout. Here’s a snapshot of the returns:
- S&P 500: +2.02%
- Dow Jones Industrial Average: +1.85%
- S&P MidCap 400: +0.98%
- S&P SmallCap 600: +0.67%
Among the sectors, Consumer Discretionary led with a strong 7.02% return, while Energy struggled, down 2.78%.
Source: S&P Global. All performance as of September 30, 2024
What Happened in the Bond Market?
Bond markets also reflected the shifting rate environment:
- The 10-year U.S. Treasury ended September with a yield of 3.78%, down from 3.91% in August.
- The 30-year U.S. Treasury yield dropped slightly to 4.13%, from 4.20%.
- The Bloomberg U.S. Aggregate Bond Index returned 1.34%, while the Bloomberg Municipal Bond Index was up 0.99%.
As interest rates shift, bondholders may benefit from adjusting their portfolios to take advantage of potential rate declines, but expectations should remain tempered given the Federal Reserve’s cautious approach.
Source: S&P Global. All performance as of September 30, 2024
The Smart Investor’s Next Steps: How to Prepare for Year-End Volatility
As interest rates fall, but not as fast as many hoped, investors should rethink any excess cash holdings and consider reinvesting in something that align with their long-term goals. More importantly, staying invested through volatile periods remains one of the smartest strategies.
Here are a few ways to stay ahead of uncertainty:
- Maximize tax-efficient investments: Consider capital gains harvesting or tax-loss harvesting to minimize your tax liabilities before year-end.
- Leverage charitable donations: Use charitable donations to reduce taxable income while supporting causes that matter to you.
- Ensure your portfolio is responsive: Keep an eye on interest rate changes and their impact on your investment strategy, especially if you’re nearing retirement.
As we navigate this volatile period, staying informed about market trends and economic indicators is more important than ever. Whether you’re a DIY investor or working with a financial professional, understanding the dynamics at play can empower you to make better financial decisions.
Remember, a comprehensive financial plan goes beyond short-term market fluctuations; it encompasses long-term strategies tailored to your unique goals. If you find yourself questioning your financial strategy or the level of guidance you’re receiving, don’t hesitate to reach out.
Disclaimer
The information provided in this monthly blog post about the stock and bond market is intended for general informational purposes only and should not be construed as personalized financial, investment, tax, or legal advice. The content reflects the author’s opinions and analyses based on current market conditions and historical data, which are subject to change without notice.
Investing in the stock and bond markets involves significant risk, including the potential loss of principal. The strategies and viewpoints discussed in this blog post may not be suitable for all investors and should not be relied upon as the sole basis for making any investment decisions. Past performance is not indicative of future results. We strongly recommend that you consult with a qualified financial advisor, tax professional, or legal expert before making any financial decisions or implementing any financial strategies. Any decisions made based on the information in this post are solely at your own risk.