Stocks climb on week, with S&P 500 on pace for first September gain in 5 years

By Christine Idzelis

The Dow Jones Industrial Average notched a fresh record high on Friday

September is shaping up to be a solid month of gains for U.S. stocks, with the market bucking the seasonal trend after the Federal Reserve announced a big interest-rate cut.

The S&P 500 SPX slipped Friday but rose for a third straight week, bringing its September advance to 1.6%. With one trading day left this month, the S&P 500 is on track to post its first September gain since 2019, FactSet data show.

"The soft-landing narrative is fully baked in stock prices right now," said Anthony Saglimbene, chief market strategist at Ameriprise Financial, in a phone interview Friday. That "seasonality factor," where September is historically a rough month, "really didn't pan out" after the Federal Reserve's large interest-rate cut, he said.

The Fed announced on Sept. 18 that it was lowering its benchmark rate by a half percentage point to start its rate-cutting cycle, with Chair Jerome Powell citing a recalibration of monetary policy following a substantial easing of U.S. inflation and a desire to keep the labor market solid.

A fresh reading Friday on U.S. inflation from the personal-consumption-expenditures price index showed its annual rate cooled in August to 2.2%. Rates in the U.S. bond market fell after the inflation data came out at 8:30 a.m. Eastern time on Friday, with Treasury yields retreating and federal-funds futures shifting to reflect a higher chance of another large rate cut from the Fed in November.

The yield on the 2-year Treasury note BX:TMUBMUSD02Y fell Friday to 3.562%, down four straight weeks in its longest stretch of weekly declines since December 2020, according to Dow Jones Market Data. The 10-year Treasury yield BX:TMUBMUSD10Y slipped to 3.751% on Friday, based on 3 p.m. Eastern time levels.

Treasury yields are broadly down in September, falling as investors anticipated the Fed would this month begin lowering rates.

On Friday afternoon, fed-funds futures pointed to a 54.8% probability that the Fed will decide to cut its benchmark rate by a half point at its next policy meeting, scheduled for November, according to the CME FedWatch Tool. That compared with a 45.2% chance traders were pricing in for a smaller, quarter-point cut from the Fed's current target range of 4.75% to 5%.

Cyclical stocks pull ahead of tech lately

Investors will be monitoring data on inflation, economic growth and corporate profits, all of which will be important for stocks to climb higher from current levels, according to Saglimbene.

"Investors want to see the rally broaden," he said, adding that cyclical stocks recently leading gains represent an example of that. Saglimbene pointed to recent rallies in the S&P 500's materials, industrials and financial sectors, all of which are beating technology over the past three months as the U.S. economy continues to grow.

The S&P 500's industrials sector has rallied 10.7% in the past three months, while materials jumped 9.8% and financials climbed 10.3%, according to FactSet data. The tech sector has trailed over the past three months, with a modest 0.4% gain over that stretch through Friday.

That represents a recent shift in leadership in the U.S. stock market, as the tech sector's outsized gains of almost 29% so far in 2024 have propelled the S&P 500 to a 20.3% rise year to date, FactSet data show.

This week, the S&P 500's materials sector rose 3.4%, booking its biggest weekly gain since December. The tech sector trailed, gaining 1.1% for the week while the S&P 500 posted a 0.6% weekly advance.

Cooling inflation, signs of a still growing U.S. economy and the Fed's large rate cut gave the soft-landing narrative "some renewed life in September," said Saglimbene. Corporate earnings reports for the third quarter, which will begin rolling out next month, will be "a big tell for the market" as to whether stocks can keep climbing, he said.

The Dow Jones Industrial Average DJIA rose 0.3% on Friday to finish at a fresh record high, while the S&P 500 slipped 0.1% and the Nasdaq Composite COMP shed 0.4%. All three major U.S. stock benchmarks rose for a third straight week, according to Dow Jones Market Data.

-Christine Idzelis

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09-27-24 1727ET

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