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Stocks Positive; Fed Meeting This Week

°¿±¹±ð°ù±¹¾±±ð·É:ÌýStocks across the globe reversed steep losses from the prior week as all major indices finished in positive territory last week. In the U.S., the S&P 500 index rose 4.1%, and is now less than 1% away from its record level set in July. Markets were encouraged by consumer sentiment data, which reported at a four-month high, along with inflation readings that came in mostly in line with expectations. Headline consumer prices (CPI) reported at a consensus 2.5% year-over-year, while core CPI came in at 0.3% month-over-month, slightly higher than expected. As inflation continues to fall, the exception has been housing inflation, which at 0.5% month-over-month was the main driver for core CPI coming in above expectations. In bonds, the 2-year and 10-year Treasury notes finished the week lower in yields, closing the week at 3.57% and 3.65%, respectively. The yield curve continues to normalize, with the 2-year to 10-year spread rising to a positive 0.07%. Looking forward to this week, the Federal Reserve will hold their September policy meeting Tuesday and Wednesday, as markets anticipate the first interest rate cut since the current rate of 5.25%-5.50% was implemented in July of 2023. FedWatch futures data is currently pricing in about a 60% chance of a 50bp (0.50%) cut, and a 40% probability of a 25bp move lower in the funds rate.Ìý Ìý

Update on EarningsÌý(from JP Morgan): It’s all relative when it comes to growth. S&P 500 4Q earnings are expected to grow by 16% y/y and 14% ex-Magnificent 7. However, it’s important to put these numbers in the context of the 2022 earnings recession. This week’s chart looks at each sector’s 2Q24 and 4Q24 earnings relative to the maximum EPS achieved between 4Q21 and 1Q24. In every sector except Financials, 2Q24 earnings, the blue bar, were still below their previous maximum, represented by the grey bar. Among Tech and Mag 7 companies, the base rate effect is especially pronounced. These names have seen extremely strong growth over the past few quarters, but they also experienced the largest contractions in 2022. Tech sector earnings had a maximum drawdown of 17% and didn’t fully recover until 4Q23. Similarly, Mag 7 earnings fell 40% from 4Q21 to 2Q22, and again, didn’t fully rebound until the end of 2023. Looking ahead, the large gap between 2Q24 reality and 4Q24 expectations will be a high hurtle to beat. Tech got an early boost from AI enthusiasm, but other sectors are on the up and up as well. This past earnings season, the S&P 500 ex-Mag 7 saw positive EPS growth for the first time in five quarters, with eight out of 11 sectors seeing gains. But the outlook for earnings growth is about more than just a recovery. If the economy sticks the soft landing, it should make for a supportive environment for many more than just seven companies.

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