2024 | November 4

The Markets

Stocks Slightly Down

An otherwise quiet week of trading turned volatile on Thursday as stocks tumbled amid fresh concerns about the growth potential of technology stocks and artificial intelligence. Although the major indexes regained positive momentum on Friday, the S&P 500 and the NASDAQ ended with weekly declines of more than 1%; the Dow’s decline was fractional. 

The U.S. economy largely maintained momentum in the third quarter despite recently high interest rates and continuing concerns about inflation. While the latest quarter’s annual GDP growth figure of 2.8% was slightly below the second quarter’s 3.0% reading, it was well above the 1.6% first-quarter rate.

The labor market weakened in October, as the 12,000 jobs that were added was far short of the previous month’s strong result and marked the smallest increase since December 2020. In addition, initial jobs gain figures for August and September were revised downward. The unemployment rate was unchanged at 4.1%.

Earnings momentum remained positive following results from the biggest technology companies amid the busiest stretch for earnings season. As of Friday, analysts were forecasting that third-quarter earnings for all companies in the S&P 500 would rise by an average of 5.1%, based on results already reported and forecasts for earnings numbers that are still pending, according to FactSet.

Yields of U.S. government bonds rose for the sixth week out of the past seven, but at a somewhat slower pace. The yield of the 10-year note closed at 4.37% on Friday—up from 4.24% at the end of the previous week and well above a recent low of 3.62% on September 16.

The U.S. Federal Reserve’s preferred inflation gauge showed further slow-but-steady easing of price pressures. The Personal Consumption Expenditures Index rose at an annual rate of 2.1% in September, down from 2.3% in August and the lowest figure since February 2021. Excluding energy and food prices, the core PCE Index rose 2.7% in September.

In addition to Tuesday’s U.S. election, the week will bring a two-day U.S. Federal Reserve meeting that’s scheduled to conclude on Thursday—a departure from the Fed’s typical Tuesday-Wednesday cycle for policy meetings. It’s widely expected that the Fed will approve an interest-rate cut of a quarter percentage point as a follow-up to the half-point cut that it made in September.

Source: John Hancock Investment Management

Schwab Year End Deadlines

Perception vs. Reality

The human brain is complex and powerful. It runs on about 20 watts of power and brains need to be recharged, just like your cell phone does, according to Northwestern Medicine.

It’s interesting to note that brains are not objective. They catalogue our experiences, beliefs, and emotions and then interpret what’s happening around us. As a result, our reality on any given day is affected by “our personal physical abilities, energy levels, feelings, social identities, and more,” reported Jill Suttie in Greater Good Magazine.

For example, studies have found that hills look steeper when people are:

• Tired.
• Wearing backpacks.
• Thinking of people they dislike.

In contrast, hills look less steep when people feel energetic or think of a supportive friend.

An August survey from the National Federation of Independent Business, a small-business advocacy group, reinforced the idea that there is a gap between economic perception and economic reality. The survey found that small business owners were quite optimistic about the financial state of their businesses, reasonably optimistic about the state of their local economies, and pessimistic about the state of the U.S. economy. 

When survey participants were asked when the United States might experience another recession, 52 percent said the U.S. economy was in a recession right now. A recession is a downturn in economic activity that lasts for a significant period. Economic data show the U.S. economy, as measured by gross domestic product (the value of all goods and services produced in the U.S.), has been growing since late 2020.

The answers were interesting because most businesses—small and large—experience declines in sales and profitability when the national economy is doing poorly or in a recession. The gap in perception and reality may reflect the fact that “people are upbeat about what they see directly but pessimistic about what they glean indirectly through media (and social media),” opined Rabinovitch of The Economist.        

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Charles Schwab

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Emily Triano

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