Weekly Market Update - September 13, 2024

After an impressive rally in the first eight months of the year, with the S&P 500 and Nasdaq each up around 18%, the market is entering a traditionally weaker stretch . September’s already seen a 4% dip, led by underperformance in tech and communication services.

• Seasonal Weakness — September and October are historically choppy months for markets, and with political uncertainty ahead of the Nov. 5 U.S. elections, we could see further volatility or a correction.
• Positive Fundamentals Remain — Inflation is cooling, rate cuts are on the horizon, and economic growth still isn’t recessionary.

Even with sticky inflation and concerns over interest rates, stocks have shown resilience that analysts expect to continue.

• Earnings Beat Expectations — With 80% of S&P 500 companies reporting, earnings per share (EPS) growth is pacing at 5%, well above the 3.2% expected. This marks the highest year-over-year growth since Q2 2022.
• Margin Growth — Net profit margins have risen to 11.7%, outpacing the five-year average. Companies, particularly outside tech, are cutting costs, driving margin growth through the rest of the year.
• Bullish Outlooks — Despite macroeconomic uncertainty, 45% of companies have issued positive EPS guidance for Q2, a sharp improvement from the 10-year average of 37%. This has analysts raising estimates instead of cutting them—a rare, bullish signal.

Another month of cooling inflation is in the books, with the Consumer Price Index (CPI) rising just 0.2% in August. The Fed now looks poised to ease up on rate hikes next week, signaling some relief for the economy.

• Yearly Inflation Slows — CPI rose 2.5% year-over-year, down from 2.9% in July. This is the smallest annual increase since 2021, suggesting inflation is finally cooling off.
• Core CPI Stays Steady — Excluding food and energy, core CPI held at 3.2%, the same as in July. Prices for cars, trucks, and furniture even dipped, while rent and car insurance crept up.
• Fed's Next Move — The Fed is expected to cut rates soon, but it’s unclear if it will be by a modest 0.25% or a more aggressive 0.5%.

Good news: Americans’ positive sentiment toward businesses remains steady. But when it comes to trusting companies with AI? That’s a harder pitch.

• Thumbs-Up — A solid 63% of Americans believe businesses have a positive impact on people’s lives. That’s holding strong from last year and a decent leap from 2022’s 55%.
• What They Want — Peole want companies to play fair—79% care about businesses making money ethically, and 71% prioritize good healthcare benefits. But fewer are impressed by how companies handle pay gaps or work flexibility.
• Trust Issues — Here’s the challenge—77% of people don’t trust businesses with AI. More transparency might help, but it’s clear businesses still have work to do in order to earn that trust.

The Q3 2024 Cox Automotive Dealer Sentiment Index paints a bleak picture, but it's not all doom and gloom. While challenges remain, dealers are proving resilient, even in a market filled with uncertainty.

• Franchised vs. Independent — Franchised dealers managed a neutral score of 50, but independent dealers hit a low of 37.
• Political Climate Adds to Dealer Headaches — The political climate jumped to the third biggest concern for dealers, with 44% of dealers citing it as a factor holding back business.

For the 11th month in a row, the Average Transaction Price for new vehicles dropped YOY . With inventories climbing, many dealers are feeling the heat of lower prices.

• New Vehicle ATP Drops — The August ATP came in at $47,870, down 0.6% from July’s $48,166.
• Incentives on the Rise — Dealers sweetened the deal with incentives averaging 7.2% of ATP in August, up from 7.0% in July. That’s the highest level of incentive spending since early 2021, up from just 4.8% a year ago.

Inventory might be up, but profits? Not so much. U.S. auto dealers continue to view the market as weak, with profitability taking a hit, especially for independent dealers.

• Inventory Isn’t the Issue — With new and used car inventory improving, you’d think sales would follow suit. But dealers are still feeling the pinch, with profits down and market sentiment stuck at 40—well below the "optimistic" threshold of 50.
• Rising Costs, Shrinking Profits — Costs keep climbing, with the cost index reaching a record high of 77, leaving dealers to navigate the shrinking profit margins. The profitability index dropped to 34, far off from its 60-point peak in 2021.

For more data and stats like this delivered right to your inbox, subscribe to our daily email: