“
”Markets in Focus
Timely analysis of market moves and sectors of opportunity
Volatility remains elevated, reflecting uncertainty over the path of interest rates, the possibility of a contested U.S. election and heightened geopolitical tensions.
Consensus estimates for the S&P 500 look for a reacceleration to double-digit earnings growth in the fourth quarter and 2025, which raises the importance of forthcoming earnings results and management commentary.
Themes to consider include cyclicality, the long-term potential of small caps, and beneficiaries of the artificial intelligence buildout.
“Earnings season is kicking off at an interesting point and is raising the importance of the market seeing continued strength from corporate America,” said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management.
Orton said other positive economic reports have forced investors to pare back their expectations for an aggressive rate-cutting cycle. Just a few weeks ago there was 180 basis points (bps) of monetary loosening, including at least one further 50-bp cut this year, priced into money markets by the end of 2025, but Orton said equities have held up remarkably well as this has adjusted and rates have moved higher.
While the super-sized start to the interest rate-cutting cycle had many investors more optimistic about the prospects of a soft landing, sticky inflation data coupled with rising geopolitical tensions and a contentious U.S. election are leading to increased uncertainty around the path of rate cuts going forward. These factors increase the likelihood that we’ll see continued dispersion through earnings season, where misses are likely to be penalized sharply and beats coupled with strong guidance could be required to keep moving higher.
This increased focus on fundamentals is a good thing, Orton said, as some of the lower-quality investments that rode the interest rate-cut or artificial intelligence (AI) waves should be brought back to earth. It’s worth noting that the results reported from the large banks on Friday were encouraging, with better than expected management outlooks, particularly around net interest margins and the recovery in investment banking.1 While some of the recent inflation data has some investors on edge about a pause in the rate-cutting cycle in November, Orton sees that as too abrupt a shift after having cut 50 basis points (bps), particularly as most U.S. Federal Reserve (Fed) officials still appear to be convinced that rates are in restrictive territory.
“I continue to see 25-bp cuts at each of the year’s remaining meetings,” Orton believes. “Overall, the backdrop remains quite supportive for risk assets going forward. The rising tide might not be lifting all boats anymore, but I believe that creates a healthy environment for higher-quality companies with strong fundamentals to outperform. I continue to encourage investors to consider using downside opportunistically and to think about building more balance in portfolios by leaning into cyclicality but maintaining exposure to growth.”
Results from this earnings season will be important, especially the commentary and guidance from management teams, given that consensus estimates look for a reacceleration to double-digit earnings growth in the fourth quarter and 2025. Historically, the third-quarter earnings season has been a period of strong equity returns, with the largest absolute moves often occurring during this time. Orton thinks this is largely due to the critical nature guidance for the next calendar year and that investors look to corporations to provide reassurance on the future growth narrative. In addition to focusing on the prospects for 2025, Orton expects it will be important to see a continuation in some of the recent trends supporting this bull market. In particular, he said it has been encouraging that the broadening of earnings we’ve seen over the past few quarters has been translating into an increased breadth in prices, and companies need to deliver to sustain this trend.
“I think the bar is set pretty low with the consensus estimates looking for only 4.4% earnings per share growth in the third quarter,” Orton said. “I expect to see closer to 7%-plus growth based on the average beat percentages observed over the past few years.”
Orton also thinks the market underestimates the results in more cyclical parts of the market like financials, industrials, and materials. He believes these are all parts of the market that have some good opportunities given their relatively attractive valuations and the possibility that there is now a floor to Chinese economic growth.
Orton said it’s worth diving into a bit more detail on how the narrowness that dominated 2023 and the first half of this year has evolved over the past quarter. As of 4/30/2024, the S&P 500’s top five contributors (NVDA/AMZN/META/LLY/GOOG&GOOGL) contributed 69% of the index’s year-to-date gain (4.21% of the S&P 500’s 6.04%). Critically, the increase in breadth is evident in the fact that about 80% of S&P 500 constituents are posting positive returns year to date while 34% are outperforming the index’s gain of more than 23% as of Oct. 11. The S&P 500® Equal Weight Index also is finally pushing new high after new high and so far is outperforming the cap-weighted index by 3.13% in the second half of this year. All of this gives Orton increased confidence in the sustainability of the bull market.
On the economic front, Orton said we’re at an interesting juncture where data is once again surprising to the upside. Activity data has been better than expected. Consumption has held up along with the jobs market, and gross domestic product (GDP) growth estimates are actually being revised higher. At the same time, Orton believes monetary policy is shifting from a headwind to a tailwind, which he expects to provide a boost to the most rate-sensitive expenditure components of GDP. This includes consumer durables consumption, business equipment investment, and residential investment.
“We got a reminder last week that the fight against inflation hasn’t been won yet,” Orton said, “but I don’t think the data will slow the gradual rate-cutting path of the Federal Reserve and I still expect inflation to normalize back to target next year.”
Orton expects this benign economic backdrop to provide additional support for cyclicals going forward. Despite the continued equity bull market, cyclicals excluding information technology have underperformed defensives over the last six months, he said, though that’s started to change recently. Orton expects this to continue as earnings provide a reminder of the solid fundamentals and outlook within cyclicals while the reversal in bond yields also deflates some of the run-up in the defensive trade.
The S&P 500 continues to march higher, hitting another all-time high on Friday, and Orton continues to be optimistic on the path forward. Despite the march higher in equities, volatility remains elevated across equities, fixed income, foreign exchange, and commodities. This signals some reticence over the uncertainty related to a potentially contested U.S. election and heightened geopolitical tensions. Rates have also pushed higher given positive economic data and stickiness on the inflation front, pushing the 10-year U.S. Treasury yield north of 4.1% — up nearly 50 bps since the lows following the Federal Open Market Committee (FOMC) meeting in September.
Orton said the solid economic backdrop is starting to be confirmed by bank earnings. Corporate margins are also near record highs, and the expectation for another strong earnings season are corroborating the push higher in the market, while he said “There’s also no need to chase the market higher,” Orton said. “Investors can weigh whether to use downside opportunistically and think about leaning into cyclicality and maybe consider whether to balance that with exposure to smaller companies and global markets. I also maintain it’s not time to abandon growth stocks, which I believe are poised to perform well as fundamentals remain solid and a gradual rate-cutting cycle are still playing into their favor.”
With those thoughts in mind, Orton’s investment playbook includes three key themes:
Cyclicality. Orton expects the jump in interest rates and concerns over the stickiness of inflation to keep a floor on how low rates can go for a while. Accordingly, he suspects that defensive stocks will give back some of their outperformance as a result, especially as he thinks investors rightly question whether rates will be structurally higher going forward. The parts of the market most positively correlated to rising U.S. bond yields are energy, insurance and banks. Financials have performed well, but Orton suspects earnings over the next two weeks could give the sector another jolt. Other cyclical areas like industrials also look attractive, he said, noting that the sector is finally breaking out of a prolonged period of relative underperformance. Orton’s preferred areas within cyclicals include industries like aerospace and defense and electrical equipment. “Given the importance of selectivity in this market, I believe investors can consider looking to these areas of the market in the search for potential exposure to the trends that will drive growth going forward.”
The “AI 2.0” basket. Semiconductors and software aren’t the only ways to play artificial intelligence, Orton said. While the market might question the valuations and long-term winners/losers across technology broadly, he believes the plays focused on the buildout of AI infrastructure remain on solid footing. Orton believes these tech-adjacent, “AI 2.0,” opportunities will be prime beneficiaries of the capital expenditures arms race among hyperscale tech giants expected to spend more than $400 billion over the next two years alone. Data centers are already a global market of more than $200 billion, and AI adoption is expected to accelerate data center growth with AI chips (e.g., graphics processing units) that required three to four times more electrical power versus traditional central processing units (i.e., CPUs) while generating vastly more heat. This increases the need for data center services within industrials (e.g., companies that provide liquid cooling) as well as the electric utilities that must modernize the antiquated grid in the face of surging electricity demand.
Earnings are the main event on the economic data calendar, with reports coming from financials and healthcare, plus key players in semiconductors, video streaming, and consumer products.
The Fed officials scheduled to make public comments this week include Federal Reserve Bank of Minneapolis President Neel Kashkari, Board of Governors member Christopher Waller, and Federal Reserve Bank of San Francisco President Mary Daly.
China also is scheduled to release data on consumer prices, producer prices, GDP, its trade balance, and aggregate financing figures, which will help with the assessment of China’s economic stimulus efforts and the scale of a potential fiscal package.
1 Unless otherwise indicated, all data cited is sourced from Bloomberg as of October 11, 2024.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Definitions
Basis points (bps) are measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.
A beat is when a company’s reported earnings or other business results exceed or are better than the expectations of analysts and others who follow the company’s stock.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
The Citi Economic Surprise Index is a weighted sum of economic surprises in the past 90 days. Surprises are weighted by their impact on the market and weights that are adjusted over time. Recent surprises are weighted more heavily than older ones.
A central processing unit (CPU) is the primary part of a computer that processes data and handles the computer’s execution of commands and overall functions.
A consensus estimate is a forecast of a public company’s projected earnings, the results of a particular industry, sector, geography, asset class, or other category, or the expected findings of a macroeconomic report based on the combined estimates of analysts and other market observers that track the stock or data in question.
Cyclical stocks have prices influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.
Defensive stocks provide consistent dividends and stable earnings regardless of whether the overall stock market is rising or falling. Companies with shares considered to be defensive tend to have a constant demand for their products or services and thus their operations are more stable during different phases of the business cycle.
Dispersion refers to the range of outcomes in different areas of a financial market or to the potential outcomes of investments based on historical volatility or returns.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
The Federal Reserve’s inflation target rate is the rate of price increases that the Fed prefers to see to ensure the economy will remain stable. Generally, the Fed’s target rate is 2%, as measured by the Personal Consumption Expenditures (PCE) Price Index.
A graphics processing unit (GPU) is a type of electronic circuit used in a wide range of applications that include parallel processing, graphics and video display, and artificial intelligence.
Gross domestic product (GDP) is the total value of goods and services provided in an economy during a specified period, often one year.
Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.
Guidance refers statements from the managers of publicly traded companies that indicate whether they expect to realize near-term profits or losses and why.
Headwind is a term used to describe events or market forces that hinder the prospects for performance in an individual investment or group of investments.
Hyperscaler refers to the largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.
An inflection in an investment trend marks a sudden change in the direction and rate of change of investor behavior regarding particular securities or areas of the markets. Inflections can lead to either positive or negative change.
Liquid cooling is a process that uses a liquid coolant, which is more efficient than air alone, to help absorb and dissipate heat from an energy-intensive facility such as a data center.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
Momentum investing is a strategy that aims to capitalize on the continuance of an existing market trend. It is a trading strategy in which investors buy securities that are already rising and look to sell them when they look to have peaked. It entails taking long positions on financial instruments with prices trending up and short positions on instruments with prices trending down.
A net interest margin compares the net interest income a bank generates from credit products like loans and mortgages with the outgoing interest it pays holders of savings accounts and certificates of deposit. Expressed as a percentage, net interest margin is an indicator of profitability indicator that reflects the chances of a bank thriving over the long term.
Sticky is a term used to describe measured data that is slow to change, in contrast to faster-changing or more variable data.
Tailwind is a term used to describe events or market forces that exert a positive influence on an investment’s performance. The opposite of a tailwind is a headwind, which contributes to an investment’s underperformance.
An under-owned stock is a stock that is not widely owned, and is often considered an opportunity. The term is often used to describe stocks that are less popular and may be undervalued.
Underweight describes a portfolio position in an industry sector or some other category that is less than the corresponding weight level in a benchmark portfolio.
Indices
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
The Russell 3000® Index measures the performance of the 3,000 largest U.S.-traded stocks, which represent about 96% of the total market capitalization of all U.S. incorporated equity securities.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-623027 Exp. 2/14/2025
A strong payrolls report and other economic data have undermined investor expectations for aggressive interest rate cuts from the U.S. Federal Reserve (Fed).
Matt Orton, CFA, Chief Market Strategist, sees the sanguine economic backdrop supporting the further broadening of earnings growth.
Worth considering: Secular growth trends that are agnostic to politics and already playing out in earnings.
The market has positive momentum heading into the start of earnings season this week, said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management. And that, he said, helps set the stage for some strong secular growth trends that he sees having the potential to drive opportunity through the end of the year.
“Strong economic data last week — particularly the blowout jobs report on Friday — all but confirms my expectation for a gradual Fed rate-cutting cycle,” he said. Not only did September employment significantly beat expectations, but job gains were also broad- based, and the report was accompanied by a 72,000-job upward revision to the gains reported in the preceding two months.1
Orton said other positive economic reports have forced investors to pare back their expectations for an aggressive rate-cutting cycle. Just a few weeks ago there was 180 basis points (bps) of monetary loosening, including at least one further 50-bp cut this year, priced into money markets by the end of 2025, but Orton said equities have held up remarkably well as this has adjusted and rates have moved higher.
“I believe that’s because this more sanguine economic backdrop further supports the broadening of earnings growth and its durability into next year,” he said. “Overall, I see this as a time for investors to consider leaning into a risk-on asset allocation and to think about increasing their balance to cyclical equities and small caps as fears of recession are, in my estimation, clearly overblown. Geopolitical risks remain high, and rather than chasing the market, I continue to advocate for considering being ready to use downside opportunistically.”
Earnings season kicks off in earnest at the end of the week, and Orton said he hopes it will provide some grounding to strong market fundamentals should any developments in the Middle East cause a knee-jerk reaction.
Recent stronger than expected economic data was not limited to the September jobs report, Orton noted. Institute for Supply Management surveys and the Job Openings and Labor Turnover Survey (JOLTS) published last week pointed to the U.S. economy holding up surprisingly well. The headline Services ISM® Report on Business® beat expectations in September, driven by a notable rise in new orders, pointing to continued resilience in the service sector of the economy. Additionally, Orton said a substantial upward revision in economic output in the U.S. Bureau of Economic Analysis’s national accounts data provides a strong sign that there might be less downside risk for the economy than many investors have expected. At this point, he said it’s hard to imagine upcoming data leading the U.S. Federal Reserve (Fed) to cut interest rates by 50 basis points in November or December.
September’s surprisingly sanguine payroll report curbs recession fears
Summary of 76 economists’ estimates
Source: Bloomberg, as of 10/4/2024.
Despite the more supportive economic backdrop, Orton expects dispersion in market performance will remain “quite elevated” during earnings season as investors seem to favor companies with good execution and penalize those with guidance that misses consensus estimates. Earnings results last quarter were quite strong and the broadening in earnings growth continued across more cyclical sectors like financials and materials while also seeing strength in information technology. Heading into third-quarter earnings, the estimated year-over-year earnings growth rate for the S&P 500 Index is 4.2%, which would mark the fifth consecutive quarter of earnings per share (EPS) growth for the index. Profit margins are expected to remain resilient at 12.1%.
The financials sector will be in focus over the next two weeks as it dominates early earnings releases. Banks are once again the only industry group expected to report a year-over-year decline in earnings. Orton plans to pay attention to the nuances between regionals and diversified banks as well as to guidance, which will ultimately be critical for maintaining the strong gains over the past few months.
The fundamental backdrop for the market is strong, Orton said, while the technical backdrop remains supportive of further long-term upside even though it is a bit stretched after the S&P 500 delivered its fourth consecutive weekly gain and its third consecutive all-time weekly closing high. But lurking beneath the surface is heightened geopolitical risk and a fraught U.S. election in less than a month. While the trend in equities remains higher, Orton said it’s worth pointing out that the Chicago Board Options Exchange (CBOE) Volatility Index, or VIX, has remained elevated along with heightened volatility across foreign exchange, interest rates, and commodities. With the S&P 500 within a whisper of another all-time high, he said there’s no reason to chase the market higher.
“I expect to continue to have opportunities to consider redeploying capital into drawdowns,” he said. “I believe the key is thinking ahead and working to have a plan ready to execute, depending on each investor’s situation. In particular, now is an apt time for investors to give some thought to leaning into the broadening market through secular growth trends that are agnostic to politics and already playing out in earnings.”
Accordingly, Orton’s playbook focuses on several of those trends:
Consider playing offense with defense. Orton has highlighted what he sees as the attractiveness of the defense space over the past quarter, but he says it really came into focus last week with a ratcheting up in Middle East tensions, resulting in big gains for defense-related companies. The defense industry has been inflecting higher for some time due to a more belligerent global threat environment. Defense spending relative to U.S. gross domestic product (GDP) remains suppressed, but it’s inflecting higher, and while the United States has been and will continue to be NATO’s biggest defense spender, Orton said there’s an ongoing expectation that other NATO members will increase their defense spending to at least 2% of GDP per year on an ongoing basis. He continues to expect better top- and bottom-line results going forward and he said the opportunity set still looks attractive.
Small caps. The small-cap indices continue to build a base of higher highs and higher lows and have the potential to break out higher, Orton said. The economic environment continues to improve as growth fears abate. While rate cuts might not be as rapid as the market initially expected, he said the gradual path of cuts could support risk assets. Ultimately, he said, small-cap earnings have to deliver. If small caps’ EPS growth finally starts to match or exceed that of large caps and revisions inflect higher, Orton suspects more institutional investors will come off the sidelines. He said it’s also worth noting that a large percentage of Russell 2000® Index’s companies have free cash flow that exceeds EPS, a sign of fundamental strength that tends to signal strong future returns.
Is the rally in China sustainable? China has gone from worst to first, with China’s Hang Seng Index surging nearly 22% to close the third quarter in response to a series of stimulus measures. This now makes China the best-performing equity market this year, but many investors question whether this move will be sustainable and what the ultimate economic impact will be. First, Orton said, we need to separate the market from the economy. He is still skeptical that the policy announcements will ultimately change the demand-driven issues facing the Chinese economy, but the recent stimulus is very market-friendly. That stimulus includes more stock market support, which he noted may eventually include a stock market stabilization fund. Second, more and cheaper credit is available for lending. And third, there is more support for China’s real estate sector. Orton thinks this will enable China’s momentum to continue into the fourth quarter. That said, he believes investors should think about becoming increasingly discerning in what they buy “as the rising tide will not lift all boats for too much longer.” One key implication more broadly is that emerging market equities are breaking out from a multi-year base, largely supported by Asian markets. Some foreign investors also are reducing their overweight positions in Japanese stocks and reallocating back to China: There were net sales by foreign investors of more than $20 billion from Japanese cash equities in the first three weeks of September. On the other hand, he noted that there hasn’t been a meaningful foreign selling in India or in the MSCI Emerging Markets ex-China Index as there remain structural demand for non-China exposure regardless of recent policy changes. Orton said he thinks it makes sense to consider buying the dip in countries like India where markets have pulled back slightly over the last week. Also, for investors who don’t want direct China exposure, he said there are potential opportunities for tangential exposure in global miners, particularly those focused on commodities like copper that also have strong secular demand trends, as well as in European industrials.
Cyclicality. While value has certainly outperformed growth from a pure index style perspective, Orton pointed out that historically speaking, growth, small caps, and higher-beta stocks tend to outperform in a slow rate-cutting environment. While sectors like utilities have been the big outperformer this quarter, he believes they are no longer just a defensive play. Rather, he sees utilities with exposure to data center growth as driving the sector’s outperformance. Rather than bank on value outperforming simply because rates are coming down and many sectors still look favorably valued, Orton said he prefers to think about leaning into cyclicals where the lift to earnings could continue to come from powerful economic growth trends such as artificial intelligence, reshoring, and defense. He also noted that industrials finally have started to break out of a prolonged period of relative underperformance. He likes sectors like electrical equipment due to data center exposure and machinery due to a lift from infrastructure and maybe a stronger Chinese economy.
“Given the importance of selectivity in this market, I believe investors can give serious thought to looking to these areas of the market to find value and get exposure to the trends that I believe will drive economic growth going forward,” he said.
Minutes from the September Federal Open Market Committee (FOMC) meeting come out Wednesday. Thursday brings U.S. inflation data, though Orton doesn’t expect much in the Consumer Price Index to challenge the Fed’s confidence that inflation is moving sustainably back to its 2% target. Also on the economic calendar is the Producer Price Index report and the preliminary University of Michigan Index of Consumer Sentiment survey for October.
Twelve of the FOMC’s 19 members are scheduled to speak this week. Two appearances with the potential to be substantial are Federal Reserve Bank of Atlanta President Raphael Bostic speaking on the economic outlook Tuesday and Federal Reserve Bank of New York President John Williams speaking Thursday.
1 Unless otherwise indicated, all data cited is sourced from Bloomberg as of October 4, 2024.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Commodities and currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising, Precious metal investing is subject to substantial fluctuation and potential for loss.
Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Definitions
Basis points (bps) are measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.
Beta is a measure of the volatility or systemic risk of a security, group of securities, or portfolio compared with the market as a whole.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
“Buy the dip” refers to an investment strategy that consists of buying an asset or group of assets when the price has dropped on the theory that the decline will not last and that the price is likely to rise again and thus represents a discount.
A consensus estimate is a forecast of a public company’s projected earnings, the results of a particular industry, sector, geography, asset class, or other category, or the expected findings of a macroeconomic report based on the combined estimates of analysts and other market observers that track the stock or data in question.
The U.S. Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.
Cyclical stocks have prices influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.
Defensive stocks provide consistent dividends and stable earnings regardless of whether the overall stock market is rising or falling. Companies with shares considered to be defensive tend to have a constant demand for their products or services and thus their operations are more stable during different phases of the business cycle.
A drawdown is a decline in the returns of a security or group of securities, as measured over a period from the peak of returns to their trough.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
The Federal Reserve’s inflation target rate is the rate of price increases that the Fed prefers to see to ensure the economy will remain stable. Generally, the Fed’s target rate is 2%, as measured by the Personal Consumption Expenditures (PCE) Price Index.
Gross domestic product (GDP) is the total value of goods and services provided in an economy during a specified period, often one year.
Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.
Guidance refers statements from the managers of publicly traded companies that indicate whether they expect to realize near-term profits or losses and why.
An inflection in an investment trend marks a sudden change in the direction and rate of change of investor behavior regarding particular securities or areas of the markets. Inflections can lead to either positive or negative change.
The Services ISM® Report on Business® is produced by the Institute for Supply Management (ISM) and is based on data compiled from purchasing and supply executives in a wide variety of industries nationwide. Survey responses reflect the change, if any, in the current month compared to the previous month in supplier deliveries along with seasonally adjusted business activity, new orders, and employment.
The Job Openings and Labor Turnover Survey (JOLTS) program produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor Statistics. The survey’s job openings rates consider month-to-month changes in the number of job openings reported on both a state and national level.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
National economic accounts data, published by the U.S. Bureau of Economic Analysis, include statistics that have been aggregated to provide a comprehensive view of U.S. production, consumption, investment, exports and imports, and income and saving. These statistics are best known by summary measures such as gross domestic product (GDP), corporate profits, personal income and spending, and personal saving.
NATO, or the North Atlantic Treaty Organization, is a political and military alliance of 32 countries from Europe and North America that is organized to guarantee their security and cooperation.
Overweight describes a portfolio position in an industry sector or some other category that is greater than the corresponding weight level in a benchmark portfolio.
The payroll report, officially known as the Employment Situation Summary, is a monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.
The Producer Price Index (PPI), published monthly by the U.S. Bureau of Labor Statistics, measures the average change over time in the selling prices received by domestic producers for their output.
A profit margin measures how much income or profit a company generates as a percentage of revenue. It can be expressed as a percentage or a decimal.
Reshoring describes an effort to bring manufacturing and other services back to the United States from overseas operations.
A risk-on investment is typically fueled by a strong growth environment and is more apt to rise when good news fuels bullish sentiment and investor expectations of favorable risk/reward ratios.
Secular trends are large-scale and ongoing changes in economies and societies that have the potential to drive broad and lasting economic, technological, social or other kinds of changes.
Technicals refers to technical indicators of historic market data, including price and volume statistics, to which analysts apply a wide variety of mathematical formulas in their study of larger market patterns.
The University of Michigan Index of Consumer Sentiment is based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
The VIX – officially known as the Chicago Board Options Exchange (CBOE) Volatility Index is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors’ sentiments.
Indices
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
The Hang Seng Index includes the largest and most liquid stocks listed on the Main Board of the Stock Exchange of Hong Kong.
The MSCI Emerging Markets ex China Index captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China. With 673 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. EM countries include Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-615296 Exp. 2/7/2025
