WEEKLY MARKET UPDATE 10/18/2024

The S&P 500 registered its sixth consecutive week of gains, its longest winning streak of the year, as the week’s data provided more support for the soft economic landing narrative.  Retail sales for September indicated the strongest reading since June and despite disruptions from hurricanes, weekly jobless claims fell the most in three months.  Further buoying investor sentiment has been a lull in geopolitical tensions, as reports have emerged that Israel might not attack Iranian oil or nuclear facilities and WTI crude oil prices fell over 8% on the week.  When one considers that the last five presidential election years have seen S&P 500 returns in October of -2.8%, -1.9%, -2%, -16.9% (2008 financial crisis), and +1.4%, the recent strength heading into a contested election is impressive.  Next week will be quiet as far as economic data, so we expect third quarter S&P 500 earnings to take on additional importance.

SMALL CAP RESURGENCE?

Since the pandemic, small-cap stocks, or publicly traded companies with market valuations between $250M and $2B, have notably underperformed their large-cap peers.  Since the end of 2020, for example, the US small-cap index known as the Russell 2000, has risen 15% while the large-cap S&P 500 is up over 55% (per FactSet).

However, we might finally be seeing signs of life from the Russell 2000.  Per research from the London Stock Exchange Group (LSEG) and owner of the Russell indices, earnings growth is returning to US small caps after five consecutive quarters of negative growth (see chart below) and expected to outpace the S&P 500.  November is also by far the Russell 2000’s strongest month, as small caps have risen on average 2.7% over the last 20 years, while December is second with an average gain of 1.8% (per FactSet).  Lastly, while it is a small sample size, the last two presidential election years have seen the Russell 2000 climb 18% and 11% in November.  Over the last four years small caps have admittedly shown flashes of strength that quickly faded, but the setup heading into the end of the year is interesting.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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