September 2024
Market Update

The Federal Reserve Set to Begin Cutting Interest Rates in September

Monthly Market Summary

• The S&P 500 Index returned +2.3% in August, outperforming the Russell 2000 Index’s -1.7% return. Nine of the eleven S&P 500 sectors traded higher, led by Consumer Staples, Real Estate, Health Care, and Utilities.

• International stock performance was mixed. The MSCI EAFE developed market stock index returned +3.3% and outperformed the S&P 500, while the MSCI Emerging Market Index returned +1.0%.

Stocks Rebound Following an Early-Month Selloff

Stocks traded higher in August despite an early-month selloff. The S&P 500 dropped over -5% in the first week after a report showed unemployment rose to 4.3% in July. Small-cap stocks underperformed as investors pulled back from riskier assets amid volatility. However, financial markets quickly stabilized and climbed throughout the month. The S&P 500 recovered all its losses, ending the month less than -1% below its all-time high from mid-July. The Nasdaq 100 Index, which includes the artificial intelligence companies that drove the stock market higher in early 2024, lagged the broader market. In the bond market, Treasury yields fell for the second consecutive month, driven by expectations for deeper rate cuts in response to rising unemployment. Bonds traded higher for a fourth consecutive month as Treasury yields declined and investors rushed to lock in current fixed income yields ahead of the first interest rate cut.

Fed Set to Cut Interest Rates as Focus Shifts to the Labor Market

Investors expect the Federal Reserve to start cutting interest rates at its next meeting on September 17th. Fed Chair Jerome Powell signaled the move at last month’s Jackson Hole conference by saying, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” It was the Fed’s clearest policy signal since it last raised interest rates 14 months ago.

The Fed’s transition to cutting interest rates comes as its focus shifts from lowering inflation to supporting the labor market. Since the last rate hike in July 2023, inflation has dropped from 3.3% to 2.9%, while unemployment has risen from 3.5% to 4.3%. The Fed is more confident that inflation will return to its 2% target but is concerned about the overall health of the U.S. labor market. The key question is how much and how quickly the Fed will lower interest rates. Investors anticipate that the Fed will cut rates by approximately -2% through the end of 2025, but the timing and amount will depend on the economy’s path. A weaker economy would justify more rate cuts, while a stronger economy would likely lead to fewer rate cuts.

Source: YCharts. SPY (Large Cap) vs. IWM (Small Cap), Data from 6/30/2024-7/31/2024.

This year’s high-flying mega-caps bore the brunt of the large-cap sell-off as investors questioned when billions of dollars in AI investments will pay off. As investors rotated, the year-to-date return gap between the Nasdaq 100 and Russell 2000 shrank from nearly +16% at the end of June to now only +3.3%. It’s uncommon for the stock market to experience such a large shift in such a short amount of time. There could be some residual volatility in the near term as markets weigh the prospects for corporate earnings and interest rate cuts, but the market isn’t expecting a repeat in August.

Current Positioning

Considering the trends, we have continued to maintain a preference for US large-cap stocks. However, we have added a small allocation to International Developed. As we move forward, we’ll continue to monitor these trends and market breadth to navigate the evolving landscape and make informed investment decisions.

As we turn our attention to the bond markets, upcoming economic data will be crucial as the Fed decides when and how quickly to lower rates. The market continues to anticipate that the Fed will reduce rates in September, with possibly one or two additional cuts by the year’s end. Our Total Return Bond Strategy remains fully invested and continues to boast an attractive yield of over 7%. This high dividend has provided a buffer during recent volatility, and as long as the prices remain stable, we should be able to stay invested. However, if trends change, we will shift to safer investments to preserve capital.

If you are concerned about your risk level, please reach out to us, and schedule a time to review your allocation and financial plan.

Upcoming Events

Save the Date! – 2024 Medicare Webinar: Wednesday, October 9th at Noon MDT

Copperwynd Financial is hosting a virtual Medicare webinar for our clients. Please mark your calendars to save the date! An email invite will be sent out in the coming weeks.

Save the Date! – Women’s Holiday Luncheon and Book Exchange

• Utah Event - Tuesday, November 5, 2024 at Gardner Village — Gear Room at Archibald’s Restaurant

• Arizona Event- Thursday, November 7, 2024 at Olive & Ivy – Gallery Room

Please mark your calendars to save the date! An email invite will be sent out in the coming weeks.

If you have any questions, please do not hesitate to contact our office at 480-348-2100.

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To download the September 2024 Newsletter: CLICK HERE