Market Update - September 2, 2024 PDF

Market Update – September 2, 2024 Slide 69 I. Last Week A. Stocks 1. Stocks: DJIA +.94%; S&P 500.24%; Russell 2000 -.05%; Nasdaq -.92% Slide 70 a. S&P just 7% away from 6000 b. Earnings of $278 expected in 2025; 20...

Market Update – September 2, 2024 Slide 69 I. Last Week A. Stocks 1. Stocks: DJIA +.94%; S&P 500.24%; Russell 2000 -.05%; Nasdaq -.92% Slide 70 a. S&P just 7% away from 6000 b. Earnings of $278 expected in 2025; 2026 $311 Slide 71 2. Biggest stories: a. NVDA released earnings (discussed more on next page) i. Delayed Blackwell chip (a few months late), sales and profit growth are decelerating 1. Earnings were still great, DELL also optimistic about AI b. Inflation is becoming less of an issue and Q2 GDP revised up to 3.0% i. PCE held steady at 2.5% in July (2.6% expected). Core remained at 2.6% (2.7% expected). Slide 72 ii. Headline and core each increased.2% (MoM) iii. The three-month annualized rates for PCE and core PCE dropped to 0.9% and 1.7%, respectively 3. Worries a. NVDA’s performance (see next page) b. Buybacks will slow in mid-September (blackout: two weeks before quarter-end until 48 hours after earnings), negative seasonality, election uncertainty c. Economy may be slowing i. Hiring is slowing. So are quits. (We’ll see JOLTS report this week.) 73, 74 ii. Revised jobs numbers from past year down by 818K. iii. Consumer delinquencies are rising Slide 75 iv. Defensive sectors doing better: utilities, staples, healthcare (FT) Slide 76 d. Companies are hesitant to file for an IPO (over past decade, there have been ~$55B of IPOs per year; YTD there have been ~$25B). i. Reasons to wait until 2025 1. Recent market choppiness 2. Potential future turbulence 3. Uncertainty around election 4. Uncertainty about Fed rate cuts (WSJ) ii. On positive side, Russell 2000 has started outperforming. e. PBOC warned of potential correction in bond market w/ 10-year Chinese government bond yield $2,600 / year Slide 96 b. Hard to reduce trade deficit when we need imported parts c. Unless we reduce that amount of foreign capital flowing into US, we can’t reduce the trade deficit i. Usually reducing imports just reduces exports 2. Desire to politicize the Fed 3. Desire for a weaker dollar a. Tariffs would raise the value of the dollar, making it harder for us to export C. The Candidates’ Solutions to the Expense of Parenting 1. Harris: a. Increase US housing supply by 3MM units b. Provide $25K in down-payment support to first-time homeowners c. Restore pandemic-era child tax credit of up to $3,600 per child d. Provide parents of newborns with a $6K tax credit 2. Trump/Vance a. Boost child tax credit from $2K to $5K b. Extend 2017 tax cuts and maybe lower taxes even more 7 IV. Review and Outlook, Fed Chair Jerome Powell, Aug. 23, 2024 (Federal Reserve) Slide 97 A. Introduction 1. Worst of pandemic-related economic distortions are fading: a. Inflation has declined significantly b. Labor market is no longer overheated c. Supply constraints have normalized 2. The balance of the risks to our two mandates has changed a. Inflation is improving; need to keep labor market strong 3. Today’s speech: a. Current economic situation and path ahead for monetary policy b. Economic events since the pandemic arrived i. Why inflation rose to levels not seen in a generation ii. Why inflation has fallen so much while unemployment has remained low B. Near-Term Outlook for Policy 1. Restrictive monetary policy helped restore balance between aggregate supply and demand a. Easing inflationary pressures i. Inflation is down to 2.5% Slide 98 ii. My confidence has grown that inflation is on sustainable path to 2% b. Ensuring that inflation expectations remained well-anchored 2. Prior to pandemic we saw societal benefits of strong labor market: low unemployment, high participation, historically low racial employment gaps, healthy real wage gains (increasingly concentrated among those with lower incomes) 3. Labor market has cooled from its overheated state: a. Unemployment is 4.3%; still low by historical measures, but almost 1% higher than early 2023 Slide 99 i. Most of this has not been from elevated layoffs (which is what we tend to see in an economic downturn) ii. Reflects a substantial increase in the supply of workers and a slowdown in the frantic pace of hiring b. But cooling in labor market is unmistakable (not just a supply increase): i. Job vacancies have fallen ii. Ratio of vacancies to unemployment is back to pre-pandemic range iii. Hiring and quits rates are now below levels in 2018 and 2019 iv. Nominal wage gains have moderated c. Labor market is now less tight than 2019 – when inflation was