Economic Data and Market Highlights
Global equity markets rallied this week as the expection of the US Federal Reserve to lower rates that the upcoming meeting this week. The MSCI All Country World Index rose 3.08% for the week. A reversal from the previous week with the S&P 500 advancing 4.06% as Information Technology (7.34%), Consumer Discretionary (6.15%), and Communication Services (4.33%) pushed the benchmark higher. Energy names continued to fall for the month (-6.24%) as names in the sector fell a modest 68 basis points.
Bond traders are increasing bets that a 50bps cut could be coming at next week’s Fed meeting with the Bloomberg Aggregate Bond Index rising 51 basis points. The likelihood of the cut has risen from 4% last week to 40% as of Friday. This repricing spurred a rally in US government bonds and pushed US small-cap companies higher. The Russell 2000 index jumped 1.22% throughout the day Thursday, while the S&P 500 Equal weighted index rose 0.57%. Meanwhile the US 2-year Treasury yield fell to 3.57% while the dollar fell and gold hit record highs. On Friday, the Russell 2000 continued higher, climbing over 2.25% as of mid-day trading. Small caps are increasingly well positioned for a rally as they have been outpaced by the Magnificent 7 throughout this year, up 6.86% As investors gain more faith that we are entering a cutting cycle, they are beginning to broaden out into other corners of the market besides technology.
As we near the presidential election, many promises to increase affordability have been made by both candidates. Kamala Harris has brought forth policy proposals that include tax credits for builders and $25,000 in down payment assistance for eligible buyers, while Donald Trump wants to decrease regulation and open certain plots of federal land for housing development. A perfect storm of high interest rates and low supply have done nothing but push home prices higher since the pandemic. Although interest rates are the near-term problem, supply is the deeper issue. Home buyers who locked down low rates in the last several years are unwilling to sell, and first-time home buyers can’t keep up with monthly payments or prices in general.
In 2008 construction projects fell off a cliff, leading many workers to leave the industry, now in 2024 we are nearing parity again, a possible positive sign that more construction will be possible going forward.
Many businesses globally are trending away from investments into China and instead moving its operations into their own countries. Reports this week from both the European Union Chamber of Commerce in China and the American Chamber of Commerce in Shanghai echoed a similar theme following a poll by the group which found the percentage of respondents ranking China as their top investment destination fell to their lowest level since the start of the survey 25 years ago. Indication from the survey noted profit margins in China are no longer outshining other markets seen as companies have decided to move some operations elsewhere. Notable downsizing included Apple’s move to Vietnam, Walmart selling an 8-year-old stake it held in one of China’s top ecommerce platforms, and IBM closing research institute in the country impacting 1,000 jobs. The Chinese government is now trying to boost investments into the country and stated this week to reduce its list of industries off-limits to foreign investors to 29 from 31 and pledged to have zero restrictions on the manufacturing sector per a joint statement from the National Development and Reform Commission and the Commerce Ministry.
Last year foreign investment into China fell 8% from the previous year in yuan terms. Greenfield investments, or companies that invest to build operations from the ground up, are moving to other nations such as Indonesia which is much smaller than China but drawing more of these types of investments. Chinese equities have fallen 2.74% thus far this month while the India index has risen 47 basis points.
The Past Week’s notable US data points
The Upcoming Week’s notable US data points
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director, Head of Research
Michael McNamara, Analyst
Sam Morris, Analyst