Equity markets pushed higher this week, largely disregarding a chunky U.S. CPI report and reduced expectations of near-term Fed easing.
The S&P 500 added 1.1%, led by a 4.9% jump in banks as well as firm gains in technology and industrials.
The TSX gained 1.3% on the back of technology, industrials and energy, leaving both indexes to push record highs. The bull marches on.
Inflation
Last week, U.S. core Consumer Price Index (CPI) data (which excludes energy and food costs) for September was released, and it showed that prices rose more than analysts had been predicting.1 This, along with a stronger-than-expected jobs report the previous week, has prompted some investors to wonder whether the trajectory for interest rate cuts could be in jeopardy. For some time, the consensus has been that CPI was coming down, but in this last report, the story was more complex: inflation is not a major problem any longer, but it is volatile. It is unlikely that we’ll see inflation reach the U.S. Federal Reserve’s (Fed) 2% target and just stay there. In our view, this kind of month-to-month fluctuation is what people should be expecting, because it’s difficult to get every component of CPI heading lower at the same time. At this stage, we don’t expect rate cuts to come off the table. The magnitude of those cuts is another question. Minutes from the Fed’s most recent meeting showed that there was some internal disagreement about the appropriateness of September’s 50-basis-point cut. There was broad agreement, however, about a cut of some size—it was simply a debate as to whether it should be 25 bps or 50 bps. As I’ve mentioned previously, the Fed’s move was somewhat surprising in that they waited a long time to act, then jumped straight to 50 bps rather than dialing things up slowly—that’s what the internal pushback was about. In our view, the recent CPI and payroll data effectively ensure that near-term rate cuts will be limited to 25 bps.
Bottom line: Despite stronger-than-expected economic data, we continue to believe that two 25-bps rate cuts from the Fed before the end of the year is the most likely scenario.
Hurricane Milton
Last week, Hurricane Milton wreaked havoc across Florida—an especially devastating blow to the region after Hurricane Helene had ravaged the southeast only two weeks earlier. In addition to the tragic loss of life, we expect these storms to have an economic impact, particularly in how they might affect consumer spending. People in these regions will have no choice but to focus on staples: rebuilding homes, replenishing food stores, and stocking up on new supplies. It’s possible that workplace productivity and employment numbers could dip in affected areas as people focus on getting their (and their families’) personal lives back on track. Property and casualty companies could also be negatively impacted because of insurance payouts. That said, from a macroeconomic standpoint, we expect the impact of these storms to be relatively muted. An economic stall of a month or two is possible, but we wouldn’t expect broader ramifications beyond that except for those individuals and families directly affected.
Bottom line: Hurricanes Helene and Milton could have a near-term economic impact, but the upcoming U.S. presidential election is likely to be the more significant event for markets.
China
Chinese markets have continued to be volatile, with last week’s rally stalling by mid-week as the details of Beijing’s fiscal stimulus package failed to live up to investors’ hopes.2 Earlier in the year, there was little reason to be optimistic about Chinese markets: the property sector was stagnant, consumer spending was weak, and there hadn’t been any significant stimulus from the government. As a result, many investors opted to trade out of Emerging Markets and China in particular. At that time, we emphasized that you didn’t want to get too underweight the index on China because the situation had the potential to turn on a dime, as we saw a couple of years ago when the country reopened following the pandemic. This is what happened again recently: the Chinese government made an overnight comment about new stimulus, which caused markets to surge—at least until the details were known and markets pulled back. With Beijing aware of the market’s negative reaction, on Saturday they made it clear that strong support would be delivered, including for the property sector. They highlighted that they had “significant room” to add stimulus but how they were going to do it remained vague.3 As such, we wouldn’t want to bail out of the China trade yet. Rather, we view these dips as buying opportunities, but still see this as short-term trade rather than as a long-term strategic position. On the flip side, if there were to be another massive rally, we’d view that as an opportunity to take some profits. It is important to note that China acting on the stimulus is a good sign that there is some sort of floor for Chinese markets, which is definitely a positive, but the economy is still struggling.
Bottom line: We’re remaining invested in China, but until the economy gets fully back on track, we view dips as opportunities for shorter-term trades rather than long-term holds.
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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Storm clouds over Wall Street
October 14 to 18, 2024
Storm clouds over Wall Street
October 14 to 18, 2024
Sadiq S. Adatia, CFA, FSA, FCIA
Market recap
Inflation
Bottom line: Despite stronger-than-expected economic data, we continue to believe that two 25-bps rate cuts from the Fed before the end of the year is the most likely scenario.
Hurricane Milton
Bottom line: Hurricanes Helene and Milton could have a near-term economic impact, but the upcoming U.S. presidential election is likely to be the more significant event for markets.
China
Bottom line: We’re remaining invested in China, but until the economy gets fully back on track, we view dips as opportunities for shorter-term trades rather than long-term holds.
Positioning
For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Surprise, surprise: A U.S. job market that simply won’t quit.
Footnotes
1 Augusta Saraiva, “US CPI Rises More Than Forecast, Stalling Inflation Progress,” BNN Bloomberg, October 10, 2024. ↩
2 João da Silva, “China stock rally fizzles as stimulus news disappoints,” BBC, October 8, 2024. ↩
3 David Kirton and Nicoco Chan, “China’s stimulus promises bring property sector hope, rather than confidence,” Reuters, October 15, 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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