Stocks finished October lower as investors navigated Q3 earnings, the upcoming election, and uncertain Federal Reserve policy. Treasury yields climbed as investors considered the possibility that the Fed may not cut interest rates as much as previously expected. Concerns about fiscal spending also drove Treasury yields higher, with expectations for continued high government spending regardless of the election outcome.

Investors expect the Federal Reserve to start cutting interest rates at its next meeting on September 17th. Fed Chair Jerome Powell signaled the move at last month’s Jackson Hole conference by saying, “The time has come for policy to adjust."

The S&P 500 Index returned +1.2% in July, underperforming the Russell 2000 Index’s +10.3% return. Ten of the eleven S&P 500 sectors traded higher, led by Real Estate, Utilities, and Financials. Technology was the only sector to trade lower, reversing a portion of its rise in the first half of 2024.

The topic of interest rate cuts continues to dominate the financial markets. Investors are focused on when the Federal Reserve will lower rates, all while keeping a close eye on corporate earnings and valuations. In this update, we recap the second quarter, discuss investors’ focus on the Federal Reserve, and look ahead to the themes to monitor for the rest of 2024.

The S&P 500 set a new all-time high in May after trading lower in April. The technology-heavy Nasdaq 100 Index gained +6.2% and set a new all-time high. What caused stocks and bonds to rebound after the April sell-off? The answer: Labor market and inflation data.

The S&P 500, despite trading lower in April, has gained +5.9% this year. The sharp rise in Treasury yields is one of the biggest stories this year. At the start of 2024, investors expected the Federal Reserve to start cutting interest rates in March. The U.S. economy’s resilience to higher rates is another reason the Fed is not rushing to cut rates.

Stocks traded higher in February, with the rally broadening after large cap stocks accounted for most of January’s gains. The S&P 500 traded above 5,000 for the first time, setting a new all-time high, and has now returned +21.5% since the start of November.

Stocks traded higher to start the new year, with the S&P 500, NASDAQ 100, and Dow Jones Industrial Average each setting new all-time highs. In continuation of last year’s trend, the companies with the biggest market caps accounted for a substantial portion of the early-year gains.

The S&P 500 recorded its biggest monthly gain since July 2022 and currently trades less than 5% below its all-time closing high. The NASDAQ 100 Index gained +10.8% as mega-cap growth stocks such as Microsoft, Apple, and NVIDIA traded toward new all-time highs.

The S&P 500 gained more than 20% through the end of July but has since declined 8.3% over the past three months, bringing its year-to-date gain to 10.6%. A significant factor behind the recent equity market sell-off has been the sharp rise in interest rates.

The August market action is a continuation of the primary trend we have seen this year. The market remains fixated on the Fed’s next move, including how high the Fed will raise interest rates and whether it will cut interest rates in 2024.

The August market action is a continuation of the primary trend we have seen this year. The market remains fixated on the Fed’s next move, including how high the Fed will raise interest rates and whether it will cut interest rates in 2024.