Market snapshot: final quarter set fair?

US markets reversed earlier losses to end the day, month and quarter in positive territory, with two of the three main indices edging to new record highs.

The initial wobble followed comments from Federal Reserve Chair Jerome Powell, who signalled the likelihood of a 0.25% cut in interest rates in both November and December if current conditions persist. The news was a blow to some investors who had been hoping for a further outsize cut of 0.5% next month, but the Fed remains data dependent and is in no hurry to enter into aggressive monetary easing given the current backdrop.

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Of course, there will be bumps in the road, but US markets seem set fair entering the final quarter of 2024 with the insurance of rate cuts now seemingly in the bag, inflation slowing towards the target level and with the important consumer continuing to underpin the economy.

The Fed is now sharpening its focus on the labour market, which gives an extra edge to the importance of the upcoming non-farm payrolls report on Friday. Next week, the third-quarter earnings season begins in earnest, with updates from the likes of PepsiCo Inc (NASDAQ:PEP), Delta Air Lines Inc (NYSE:DAL), JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) and with more recent data suggesting little reason why US corporates should not continue their growth path in terms of revenues and profits.

In the meantime, the new records for the Dow Jones and S&P500 leave those indices ahead by 12.3% and 21% respectively so far this year, with the tech-heavy Nasdaq index also enjoying a gain of 21.2%, some 2.5% away from its own record closing high which was set in July.

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Prior to closing for the next week, the Chinese markets had continued to power ahead, with the blue-chip index rising some 25% since the beginning of last week, when a barrage of stimulative measures were announced by the authorities in a major statement of intent to revive a troubled economy. Particular focus will be skewed to the most troubled pockets of the economy, which include but are not limited to the property sector, youth unemployment and tepid consumer confidence.

Japan’s Nikkei index also registered gains overnight, eliminating around half of Monday’s losses which had arisen from concerns over the policies of the new Prime Minister. Some weakness in the yen helped push the exporters along, while a business confidence survey suggested an improving outlook and unemployment for August came in at 2.5%, down from 2.7% the previous month and in line with estimates.

Meanwhile, UK markets swam against the tide and ended the quarter on a sour note, with sentiment dented by the escalating tensions in the Middle East and with a downward revision to the latest GDP number in focus. Sterling’s recent relative strength, especially against the dollar, has also weighed on the primary index, where the majority of constituents derive earnings from overseas which are therefore less valuable on repatriation.

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Even so, the first day of the new quarter saw some cautious gains at the open, leaving the FTSE100 ahead by ahead by 6.6% so far this year, as the index’s relative lack of exposure to what has been a burgeoning technology sector offset by some gains during tougher investment conditions given the stability and defensiveness of many of its companies, and with the additional recent boost provided to companies with a strong interest in China.