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Writer's pictureDoug MacGray
Sep 155 min read

Stocks Roar, Part-Timers Grow, Time for Small Caps

September 15, 2024


INFLATION COOLING TREND CONTINUES:  According to the U.S. Bureau of Labor Statistics, the rate of inflation, as measured by the Consumer Price Index, rose at a slower pace, going from 2.9% in July to 2.5% in August. So called "core" inflation (that removes energy and food costs) stayed the same as last month at 3.2%. This was largely due to shelter costs rising 0.5% in August. This seems to make it all but certain that a rate cut is coming.


STOCKS ROAR BACK:  After a rough start to the month of September, stocks roared back with the best week of the year for U.S. stocks. The S&P 500 closed just 0.7% shy of its all time high (reached in July). Tech stocks had a good week with rallies in Microsoft and Broadcom and others. Uber jumped after it announced the beginning of autonomous ride-hailing in Austin and Atlanta to begin early next year. Bonds also did well largely on the expectation of the Fed's first cut in interest rates in more than four years this Wednesday. 



IT WORKERS:  In the U.S., the unemployment rate for information technology workers rose to 6% in August. We were seeing layoff announcements in this industry for quite a while, and now it is showing up in the data. The unemployment rate for IT workers has now been higher than the national jobless rate for seven of the last eight months. This is the worst jobless rate for IT workers since the dot-com bubble.


ROUGH START TO SEPTEMBER:  The markets stumbled out of the gates in August, and September is starting the same way. Data out on Tuesday showed U.S. manufacturing facing continued weakness in demand in August. The ISM purchasing managers' index came in lower, and it remains in contraction. The inconclusive jobs report late in the week did not rescue the week as investors ultimately decided they didn't like it. Nvidia, which has been the big leader in this year's positive market, led markets down losing nearly 14% for the week.



LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  



PART TIME FOR ECONOMIC REASONS: One of the troublesome data points from recent labor reports is the one entitled, "part time for economic reasons." This is a measure of people who want a full time job but are working a part time job or two for economic reasons, i.e., they can't find a full-time job or their hours have been involuntarily reduced. As you can see from the graph below, this number has been trending in the wrong (up) direction. In the past year, it has gone from 4.2 million Americans to 4.8 million Americans. This number is now higher than before the COVID shutdowns.



ECB LOWERS RATES AGAIN:  Last week, the European Central Bank (ECB) lowered its key interest rate by one quarter of one percentage point down to 3.5%. This is the ECB's second rate cut in three months and the gap between the ECB and the U.S Federal Reserve Bank keeps widening. ECB president stated that due to uncertainty in the economic data, it will decide on further rate cuts "meeting by meeting." The ECB is predicting just 0.8% economic growth this year, and 1.3% for next year.


IS IT TIME FOR SMALL CAPS TO SHINE?:  Smaller capitalized companies are more sensitive to U.S. interest rates and economic conditions than large-cap stocks. Small caps usually carry more debt and rely more on bank financing to fund operations. Small caps are more domestically focused, and thus when American consumers are struggling due to inflation, it hurts small caps more. This all shows in the outcomes as small caps have not been keeping up with large caps in market returns. So far this year, small caps are up near 10%, while the S&P 500 (large caps) is up almost 20%. But with the advent of lower interest rates, many are beginning to believe it is time for small caps to perform. The amount of money put into small cap exchange traded funds this year is three times what it was for last year at this time. The lower valuations carried by these stocks seems to finally be luring investors back to the sector.  


GOVERNMENT INTEREST PAYMENTS BALLOONING:  Interest payments on the U.S national debt will cost the government about $1.2 trillion for the fiscal year ending in October of this year. This is now more than the U.S. spends on defense, and only Social Security and Medicare take up more of the annual budget. The combination of significant spending and borrowing since 2020 and now higher interest rates have caused the spike.


THE EDIFY FAMILY DINNER: As many of you know, a nonprofit institution that is near and dear to my heart is Edify.org. My wife and I have been supporters for a while, and our daughter-in-law is a key employee there. Last week, Ryan King (from the domestic Edify leadership) and Godwin Fiagbor, the VP of West Africa, visited, and we (my entire family minus my daughter who was working) all went out to Four Dogs Tavern for an outdoor dinner on a perfect weather night. It was a wonderful time. Godwin is trying to convince me to come visit Ghana. Hmmm.



Have a great week!


Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.



Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545


"I agree with my father, Albert Einstein, don't believe every quote you read on the internet."  James Earl Jones


"Remember this:  Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously."  II Corinthians 9:6 (NIV)


SOURCES:

PART TIME FOR ECONOMIC REASONS:

INFLATION COOLING TREND CONTINUES: https://www.bls.gov/news.release/cpi.nr0.htm


(c) 2024 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved


Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission. 


SDG


*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.


Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

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