Equity markets scratched out modest gains this week, with early geopolitical-related weakness offset by a strong U.S. payrolls report.
The S&P 500 rose 0.2%, with energy leading the pack, while consumer discretionary and staples lagged.
The TSX added 0.9%, with strength in energy pulling more weight north of the border.
Payroll data
At the end of last week, U.S. payroll data showed the economy added 254,000 jobs in September.1 Numbers in the previous two months were simultaneously revised upward, underscoring the robust job market and bruising recession bears everywhere. Annual wage growth also increased 4% year-over-year. With the jobless rate actually declining to 4.1%, it may no longer be sufficient to merely refer to the economy as “resilient”—in fact, don’t be surprised to start hearing descriptors like “strong” and “no-landing” (a scenario in which the economy continues to grow while unemployment remains low) re-enter the macro coverage. The only downside is that a bullish economy gives the U.S. Federal Reserve ample reason to slow and perhaps even pause rate cutting. Should the employment trends continue, we may need to price out several rate cuts through 2025, not out of fear of inflation but because the economy seems to be functioning well without monetary stimulus. The fact is we may be stuck in a long cycle. As a comparison, a delay now would be similar to what we saw in Q1, when the expectation for many cuts was revised down based on equities continuing to be positive.
Bottom line: While the macro backdrop looks good and will provide a nice tailwind for equities, the timeline for rate cuts might suffer as a consequence.
Corporate profits
With earnings season about to kick off, we typically turn our focus to the banking sector for a preview of broad economic health. Financials are inherently linked to the strength of consumers and businesses, which is why credit metrics will be high on our list of things to watch. The fact is we’re still in a fully functioning job market and demand should be sufficient for banks to see the positive effects and maintain the pace of growth. We are seeing strain in some parts of the economy though, and lower income households have in general depleted their pandemic savings, but the overall picture is not one of broad deterioration. It is of resilience. We will also look to Consumer Staples companies for a reading on household spending—although we will view those numbers with a grain of salt. Companies like Walmart and Dollar Tree target the same cost-sensitive consumer, meaning we can identify shifts in purchase decisions, yet they execute their businesses so differently that the quarterly results can also be sharply contrasting.
Bottom line: Keep a watch on banks and consumer staples’ quarterly results, which could deliver better insight into the state of the consumers and businesses.
Political risk
Less than a month from the U.S. presidential election, the race remains a close call. One positive element for investors is the down-ballot polling, which shows the odds of a sweep by either party is low. Though counterintuitive, a divided government is thought to be good for stability because it diminishes the likelihood of significant policy change. A massive shift in legislation often equals surprise, which fosters uncertainty from a market perspective. But with neither side likely to control both Congress and the White House, our expectation is for continued gridlock—a stalemate in which neither party is able to easily pass their policy proposals—through 2025. Moreover, much of the uncertainty about the election has already been priced in. The policy biases of each candidate are well understood and it is unlikely that either will surprise investors should they win the election. On the geopolitical side, tensions are running quite high by historical standards. It has been one year since the start of the Gaza-Israel war, and while the conflict has escalated at various times, oil prices have stayed anchored to supply-demand dynamics, occasionally rising but not quite exploding.
Bottom line: Despite hawkish language on both sides, the probability of a full-scale regional conflict which would be punitive on markets remains low.
The viewpoints expressed by the author represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular Investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
This article may contain links to other sites that BMO Global Asset Management does not own or operate. Also, links to sites that BMO Global Asset Management owns or operates may be featured on third party websites on which we advertise, or in instances that we have not endorsed. Links to other websites or references to products, services or publications other than those of BMO Global Asset Management on this article do not imply the endorsement or approval of such websites, products, services or publication by BMO Global Asset Management. We do not manage, and we are not responsible for, the digital marketing and cookie practices of third parties. The linked websites have separate and independent privacy statements, notices and terms of use, which we recommend you read carefully.
Any content from or links to a third-party website are not reviewed or endorsed by us. You use any external websites or third-party content at your own risk. Accordingly, we disclaim any responsibility for them.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.
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The unbreakable economy stands firm
October 7 to 11, 2024
The unbreakable economy stands firm
October 7 to 11, 2024
Frederick Demers, MA
Market recap
Payroll data
Bottom line: While the macro backdrop looks good and will provide a nice tailwind for equities, the timeline for rate cuts might suffer as a consequence.
Corporate profits
Bottom line: Keep a watch on banks and consumer staples’ quarterly results, which could deliver better insight into the state of the consumers and businesses.
Political risk
Bottom line: Despite hawkish language on both sides, the probability of a full-scale regional conflict which would be punitive on markets remains low.
Positioning
For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Riding the tailwinds of September storms.
Footnotes
1 US Hiring Tops All Estimates, While Jobless Rate Falls to 4.1%, Bloomberg, October 4, 2024. ↩
Disclaimers
The viewpoints expressed by the author represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular Investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
This article may contain links to other sites that BMO Global Asset Management does not own or operate. Also, links to sites that BMO Global Asset Management owns or operates may be featured on third party websites on which we advertise, or in instances that we have not endorsed. Links to other websites or references to products, services or publications other than those of BMO Global Asset Management on this article do not imply the endorsement or approval of such websites, products, services or publication by BMO Global Asset Management. We do not manage, and we are not responsible for, the digital marketing and cookie practices of third parties. The linked websites have separate and independent privacy statements, notices and terms of use, which we recommend you read carefully.
Any content from or links to a third-party website are not reviewed or endorsed by us. You use any external websites or third-party content at your own risk. Accordingly, we disclaim any responsibility for them.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.
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