Gary Quinzel, VP of Portfolio Consulting, kicks off the first 7 Market Movers episode of the 4th quarter with an update on how US equities are performing relative to international equities, the potential impact of a government shutdown, and what we’re expecting for Q3 GDP numbers. Watch the full video for these updates and a recap of Q3 market performance.

Watch the full video below.

TRANSCRIPT:

Hello, everyone. Welcome to this latest edition of seven Market Movers. My name is Gary Quinzel, Vice President of Portfolio Consulting at Wealth Enhancement.

I feel like we say this every year, but I can't believe it's already the fourth quarter. I, like many of you out there, are in the thick of getting ready for the Halloween season. And so having recently been at a spirit Halloween, I couldn't help but notice the frequency at which giant animatronics were flying off the shelf along with fog machines and lots of other fun exciting decorations.

If that isn't symbolic of frivolous discretionary spending, I'm not really sure what is. And so the point of this is, of course, is that the economy continues to be quite strong from an anecdotal standpoint. We, as previously referenced, we look at a lot of real time data. We look at the number of people passing through TSA, gates, the number of reservations on OpenTable, people going to movies, Broadway plays, and there's a lot of other measures as well, all demonstrate a very resilient consumer.

We have to look back as economists and practitioners in the industry and say, many of us were wrong. Back in Q1 and right around Liberation Day, many of us thought that the economy was going to slow down. It really just hasn't come to fruition. So, at this point, we talked about it last week. We saw, second quarter GDP rose in terms of the estimate, and we now have expectations for Q3 GDP per the Atlanta Fed's GDP now coming in around 3.9%, which is quite strong from a historical standpoint.

So there's a lot of positive news out there from a growth standpoint, which does actually present a risk because as many of us know, the Fed is now embarking on a rate-cutting cycle. They cut rates in September. We're looking forward to another rate cut in October most likely, which if you are cutting rates at a time where the growth is actually quite strong, Fed does have good reasons for doing this because of the cooling labor market that does pose a risk of potentially higher inflation. So before we get ahead of ourselves, I want to talk on some of the things that are happening as of latest week. Many of you also most likely know about the recent government shutdown and what that means for the economy.

If history looking back at history and past government shutdowns, we've certainly had our share of these. Last one was the longest on record going back to President Trump's first presidency back in the end of 2018 into 2019. That lasted 34 days. And though it did have some impact on the economy, from a market impact, there really wasn't much long-term effect. In fact, most of the time, if we do see any short-term disruptions, it's really driven by fear more so than fundamentals.

So for this instance, it is estimated by the CBO that roughly 750,000 workers will be furloughed, which could result in $400 million dollars per day in lost compensation, which is certainly, very material. I think one of the more concerning aspects and one of the biggest question marks is whether or not some of those workers, cuts will become more permanent in nature. And so that is a debate that's happening right now. There's some real time discussions about potential long term or permanent, federal employee layoffs, and that, of course, will have impacts on the labor market at a relatively delicate time.

I think right now from a market perspective, the real concern is around the disruption to economic data. So for those of us that look to this economic data to make real time decisions about the pace of the economy, about the labor market inflation, we may just have to wait and make our best guesstimate. What I mean by that is this Friday, the BLS is supposed to report the September jobs report. We're not going to know what that is, and we may have to wait some time because it is expected that this, shutdown could carry in carry forward for several more days, if not weeks.

So there will be some macro uncertainty in terms of not knowing the true impact or results of real time data, and that could also impact what the Fed does at their upcoming meeting later this month in October. I don't think it's necessarily at this point enough to impact the likelihood of another cut, to the federal funds rate, but time will tell. So we'll have to be paying a lot of attention to that. But since we did just did end q three, I think it makes sense to look back at market performance through the end of third quarter, which, again, has been really strong year to date.

We continue to reach new all-time highs across many indices. The S&P 500 has reached almost 30 all-time highs, this year. Year to date, the market, the broad US large cap index is up around 15%. The Nasdaq 100, which is more concentrated in technology stocks, is doing even better, up around 18%.

And even small caps have been joining the party. The small cap index of Russell 2000 was up around 3.6% last month and is now up a little over 10% this year. So small caps are catching up. We're seeing even though those, mega cap technology stocks are driving the majority performance, in some aspects, we are seeing some broad participation, which we've talked about in previous, previous updates.

I think another really interesting, talking point right now is the fact that international continues to outperform the US, and in particular, emerging markets had a very strong month, in September. So if you look at, China in particular, and there's a lot of different Chinese indices, but just looking at the Hang Seng Hong Kong, China index, that was up 30% year to date, which is its to date, its best year since 2017.

It's notable though that similar to in the US, a lot of the strength in the Chinese stocks is being driven by technology stocks. And so similar to us, you're seeing those tech leaders, which is really driven by that, forward-looking optimism around technology, around AI. And if you look at some of the fundamentals in some of their more industrial or retail focused sectors in China, they're lagging a little farther behind. So, it will be something interesting to watch how much that narrow leadership, continues to, drive performance, particularly in China.

But we are seeing broader participation across international indices, whether you're looking at developed Europe or other more emerging markets, over overall. And, of course, we continue to see an overall weaker dollar, which has supported international stocks year to date. I think it's also notable that so far this year gold continues to reach new all-time highs. It's up around 45% year to date.

And if we look at gold as a ratio, if you look at the price of gold relative to a broad commodities basket minus other precious metals, the ratio is now in its 99.9^th  percentile, which means it's increasingly very historically, expensive relative to other commodities. Something to be very cognizant about, and that's why we look at gold as more of a financial asset relative to other commodities mainly because it's been driven by central bank accumulations.

Looking forward, it's going to be a jam packed October. Earnings season is going to kick off soon. The Fed is going to meet again as we talked about. And, of course, we have to watch the impacts of the government shutdown and what that means for the labor market as well as economic data.

So, in the meantime, our advice as always for our clients, stay diversified, focus on long term fundamentals, and, of course, avoid overreacting to all the headline noise that's out there. That's all for this week. Hope you found this insightful. If you have any questions, please reach out to your financial adviser.

Have a great week.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

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