< Back
October 2024: Record Highs, Cautious Optimism, and China's Lingering Uncertainty
Dr. Mahnoosh Mirghaemi
October 13, 2024
5 min read
The S&P 500 broke through to another all-time high this past week, surpassing 5,800, marking its 45th record close in 2024. Strong earnings from major U.S. banks like JPMorgan Chase and Wells Fargo drove much of the rally, highlighting the resilience of the financial sector despite a year filled with economic and geopolitical challenges. JPMorgan surprised the market with stronger-than-expected net interest income, prompting a sharp rally in its stock—the most significant in over a year. Wells Fargo followed suit, reporting better-than-expected profits, pushing its shares up nearly 6%. Even as U.S. stocks soared, economic data painted a mixed picture. Producer prices in the U.S. were flat in September, suggesting some easing in inflationary pressures, but consumer sentiment unexpectedly declined, reflecting ongoing frustrations over high living costs. This divergence adds complexity to the market's outlook as inflation moderates, but consumer confidence wanes—a crucial factor to watch as we approach the holiday shopping season. Treasury yields nudged higher, with the 10-year yield closing at 4.08%, while oil prices saw a slight dip. Yet, global events—particularly in China and the Middle East—continue to weigh on investors' minds. The broader market remains resilient, but caution is warranted as potential risks loom.
In Europe, stocks climbed modestly amid improving sentiment, driven by declining inflation and a pick-up in mergers and acquisitions activity, especially among small- and mid-cap stocks. However, the focus is squarely on China, where markets face renewed uncertainty. China’s Ministry of Finance failed to deliver the level of stimulus that many investors had hoped for during Saturday’s press conference, leaving markets poised for a volatile reopening on Monday. Despite the government’s issuance of 2.3 trillion yuan in special bonds to support the property sector, the reallocation of pre-existing funds and the lack of new borrowing left many investors underwhelmed. Markets were further disappointed by the absence of significant measures aimed at stimulating consumer demand, which remains a critical driver of near-term growth in China.
Geopolitical tensions, particularly in the Middle East, remain a significant variable for global markets. Oil prices have been volatile, up around 10% for the month, as traders assess the risks of escalation between Iran and Israel. The potential for a disruption in the Strait of Hormuz, a vital oil transit route, could send oil prices soaring. However, such a scenario remains unlikely given Iran’s reliance on oil exports and the geopolitical complexities involved in shutting down such a crucial route. That said, markets are watching closely. Any further tensions could lead to short-term price spikes, but over the longer term, experts believe crude prices will stabilize as OPEC+ and other major oil producers continue to manage supply.
As we head deeper into earnings season, financials will remain in the spotlight. The strong performance from major banks like J.P Morgan and Wells Fargo sets a high bar for others to follow. Investors will be watching for signs of broader earnings growth across sectors. The tech-heavy Nasdaq continues to be a focal point, with major companies like Netflix and TSMC reporting in the coming days. Expectations for earnings growth this quarter remain modest, with consensus estimates calling for a 4.2% increase. As we move forward, the market's leadership is likely to broaden, with sectors beyond tech and financials taking center stage. Investors will be watching closely to see if earnings from the broader market can match the early strength seen in financials.
Monday, October 14: China trade data and India CPI will offer critical insights into the health of Asian economies, particularly as China navigates its economic slowdown. Meanwhile, Fed Governor Christopher Waller’s speech on the U.S. economic outlook could provide clues on the Fed’s next moves, especially as inflation trends remain a central concern.
Tuesday, October 15:Earnings season ramps up with reports from Goldman Sachs, Bank of America, and Citigroup. Investors will be keen to understand how rising interest rates and a shifting economic landscape have impacted the performance of these financial giants. Additionally, data on the UK jobless claims and U.S. Empire Manufacturing index will further shape the economic outlook.
Thursday, October 17: The European Central Bank’s rate decision is a major event, as markets widely expect a rate cut. ECB President Christine Lagarde’s post-meeting remarks will be crucial for understanding the bank’s future policy trajectory, particularly in the face of moderating inflation. Investors will also be keeping an eye on earnings from TSMC and Netflix for insights into tech and consumer trends.
Friday, October 18: The most important data release of the week will likely come from China, with Q3 GDP, retail sales, and industrial production reports expected. These numbers will provide critical information on whether recent stimulus measures have begun to take effect. U.S.retail sales and housing starts will offer additional insight into the state of the U.S. economy as we head into the final quarter of the year.
Overall, as the S&P 500 hits new all-time highs, it’s clear that markets are showing strength, but with stretched valuations, the future direction will increasingly rely on corporate earnings growth and broader economic fundamentals. This week’s earnings reports from key financial institutions and economic data from China, the U.S., and Europe will be essential in gauging the health of both the global economy and individual sectors.Investors should remain cautious, as geopolitical risks in the Middle East and concerns over China’s economic trajectory could introduce volatility. At the same time, global central bank policy decisions—particularly from the European Central Bank—will be critical in shaping market sentiment. Despite these risks, the longer-term outlook remains supported by solid fundamentals, as inflation moderates and economic growth, while slowing, continues in key markets.This is a crucial moment to stay informed and adaptable, focusing on both short-term opportunities and long-term market trends. Staying diversified, with an eye on potential catalysts and risks, will be key to navigating the current market landscape successfully.
