Markets with Megan

How will the Federal Reserve's aggressive rate cut impact your investments, and what does a positive yield curve mean for your portfolio? Megan Horneman breaks down the Fed's first 50 basis point rate cut since 2020, the yield curve turning positive for the first time since 2022, and easing inflation trends. Explore the ongoing struggles in the manufacturing sector and emerging cracks in the labor market. Find out how declining mortgage rates have slightly improved housing sentiment despite weak sales.

From a surge in non-US markets to the outperformance of value stocks over tech-heavy indices like the NASDAQ, the financial markets have seen a shift. As we look ahead to the fourth quarter, the potential impacts from geopolitical uncertainties and the upcoming US election are front and center. Stay tuned for the upcoming employment report, which is crucial for predicting the Fed's future actions. Don't forget to hit subscribe!

We've officially put the third quarter of 2024 in the books. It is Tuesday, october 1st, and this is Markets with Megan. We wanted to discuss just a kind of a recap of what happened in the third quarter. We came into the quarter with a lot of economic uncertainty and what we saw by the end of the quarter was the Federal Reserve delivering on aggressive rate cuts. It was the first rate cut since 2020 at 50 basis points. We saw the yield curve actually turn positive as well for the first time since 2022. And we saw volatility in the equity market spike since the most we've seen since the second quarter of 2022. So let's just touch on some of the key points from an economic and an asset class perspective.

From an economic standpoint, inflation continues to ease On a three-month annualized basis. The core level that the Fed prefers to look at that actually is now at a 2.1% basis, so it's getting much closer, basically, at the Fed's target rate. Manufacturing continues to be under a lot of pressure, still contracting. It's been contracting for 21 out of the past 22 months. The labor market has shown signs of cracking and that's why the Fed was forced to cut interest rates in September. We saw much fewer jobs in the month of August and then we saw the prior two months actually revised down by 86,000. Housing's gotten a tad bit of a boost from a confidence perspective because we've seen a big decline in the mortgage rate. The mortgage rate is down over almost 100 basis points from its high to 6.1% to end the quarter. So sentiment there has increased from the home builders. But we're still seeing weakness on the sales level.

From an equity perspective, we started to see some broadening out in the equity market rally. It wasn't all US and technology anymore. In fact, if you look at the MSCI All Country World Index, excluding the US, that was outperformed to the NASDAQ, which has been our tech-heavy kind of winner this year, by over 6% Value as well. If you look at the Russell 3000 value, it outperformed the Russell 3000 growth by about 300 basis points. The Magnificent 7 that everyone's loved this whole year they've lagged. Actually, four of the seven MAG7 stocks were lower for the quarter and NVIDIA posted its first quarterly loss since the fourth quarter of 22.

From a fixed income perspective, we've already said the yield curve is now positive. We did see that bonds are on their pace for their second consecutive quarterly rally. All of the sectors in fixed income were positive, but it was led by long-term treasuries as well as investment-grade debt. On the commodity front, it was higher as a whole the index and that was really led by the precious metals. Gold rallied with the Fed's rate cut and the economic uncertainty.

That is really the recap we've got here of the third quarter. We're going into the fourth quarter. There's a lot of uncertainty here coming in from a geopolitical standpoint. We've got an election here in the US and a lot of economic uncertainty. So we'll welcome some of the rally and the news that we got in the third quarter. Let's see if we can finish out the year on a strong note as well. We'll be back this week with some more economic information for you and we'll round out this week with the employment report, which is going to be very important to gauge the Fed's next steps at their November and December meetings. That's all we got. If you like this, please hit subscribe like hit that alarm bell. If you would like to see additional podcasts our history of podcasts you can go to M. Thank you.