By
Derek Hamilton
October 22, 2024
We recently released our latest iteration of “Inside the markets,” a chart-powered guide that provides a detailed look into macroeconomic developments, equity market insights, and fixed income trends. Our key takeaways at the end of 3Q24 are as follows:
- The US economy continues to grow at a healthy pace, though pockets of weakness are emerging. The labor market is clearly weakening, with cyclical job growth near zero and unemployment moving higher.
- Inflation continues to decrease, with core Consumer Price Index (CPI) inflation slowing to the lowest rate in more than three years. Goods prices are still falling on a year-over-year basis, while services inflation remains elevated but should move lower.
- The US Federal Reserve (Fed) lowered interest rates and signaled a more aggressive path of rate cuts, with the focus shifting from inflation to rising unemployment. The balance sheet continues to shrink, though the Fed began to slow the pace of decline in June 2024.
- Europe continues to see persistent, modest growth, while Germany underperforms. Lower inflation has allowed the European Central Bank and the Bank of England to lower interest rates.
- The Chinese economy remains weak, especially in the housing market. Fiscal and monetary easing continues, though the pace of stimulus continues to underwhelm.
- US equity markets continue to perform well, with the S&P 500® Index getting a boost from the largest companies, pushing valuations higher. However, international equities, including Japan, are performing better this year. The dollar has been strong but might be peaking versus developed-market currencies.
- Bond markets have begun to see better returns as the reality of Fed rate cuts pushes prices higher. US investment grade and high yield spreads are historically very tight, though distressed high yield bonds have weakened.
Looking ahead, we still believe an imminent recession is unlikely, though recent labor-market weakness has us more concerned (illustrated in the chart below). If we are correct and the US avoids a recession in the coming months, we will be suspicious of the Fed’s ability to lower interest rates as much as it claims. In China, we are watching for signs of more aggressive fiscal stimulus, given recent rhetoric from policymakers.
Unemployment rate and consumer confidence in the labor market
Note: Shaded areas of the chart indicate periods of recession.
*Measured as the difference between consumer views that jobs are plentiful and jobs are hard to get.
Sources: Macquarie, Macrobond, US Department of the Treasury, US Bureau of Economic Analysis (BEA), US Bureau of Labor Statistics (BLS).
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