November 11, 2024

The S&P 500 Index declined 0.9% for the month of October.  Financials (+2.7%), communications services (+1.9%), and energy (+0.8%) were the only S&P sectors to register a gain during October while the largest decliners were health care (-4.6%) and materials (-3.5%).  Most indices registered declines of around 1.0%, and while growth performed slightly better than value, returns were bunched pretty close together for the most part.

The US economy remains sound, inflation is cooling, and the Fed is likely to proceed gradually with cutting rates. Macro data the past two weeks was better than expected, highlighted by improving PMI’s, an upturn in new and pending home sales, stronger durable goods orders), and improving consumer confidence and spending.  Housing activity improved in September, likely reflecting a decline in mortgage rates from April to September; however, the back-up in rates post-Fed rate cut likely forestalls further recovery for now.

With Goldilocks conditions in place for now, the Fed likely sticks to plan with a 25 bps cut this month (they did!) and another 25 in December.  A growing economy and corporate profits, a friendly Fed, and favorable seasonality (November to April) should support the market post-election as well as news flow regarding the transition to a Republican administration.  However, the combination of continued elevated valuations and sentiment have not gone away and should be carefully watched, especially in light of the uptick in term bond rates. We continue to believe a diversified portfolio of reasonably valued, high-quality durable growth stocks should allow ongoing participation in the current bull market while offering superior downside protection amidst any bouts of market volatility that may arise.