Market of the Month: US 500 price drivers
15:00, 6 November 2024
In 2024, the US 500 has been on a rollercoaster ride, experiencing both strong rallies and sharp corrections as global economic challenges persist. This benchmark index, often viewed as a reflection of the overall health of the US economy, has caught the attention of traders worldwide as it navigates volatility fuelled by macroeconomic factors.
The US 500's performance has been closely tied to shifts in economic data, monetary policy, and geopolitical developments – with the index facing strong headwinds as well as short-term bursts of optimism.
Key drivers for the US 500 in 2024
Economic slowdown fears
Ongoing concerns about a global economic slowdown, particularly signs of weakening growth in the US and China, have weighed heavily on investor sentiment at times. The spectre of a recession in the US has led to cautious market activity, dampening enthusiasm for equities and resulting in increased volatility in the US 500.
KEY SLOWDOWN MOMENT IN 2024: In August, just as the US was glued to Deadpool & Wolverine, the country’s economy had its own split storyline. While Marvel owner Disney saw a share price uptick, consumer spending slowed and housing markets cooled off. Investors couldn’t quite decide which plot twist to focus on: the ongoing recession fears or the potential for a soft landing. In the midst of all this, the US 500 took a breather, reflecting the cautious sentiment as summer optimism faded and reality set in.
Interest rates and monetary policy
Throughout 2024, the Federal Reserve's interest-rate meetings have attracted interest from US 500 traders. After the central bank decided to hold steady early in the year, the much-anticipated cut arrived in September. Expectations of further cuts have bolstered parts of the index, particularly technology and growth stocks, while the uncertainty surrounding inflation and future monetary policy has kept markets on edge.
KEY INTEREST-RATE MOMENT IN 2024: In September, the Fed’s 50 basis-point rate cut helped push the US 500 to new highs. In the midst of Taylor Swift’s Eras tour, the markets had a ‘shake it off’ moment, shrugging off inflation worries and jiving to the bull market beat.
US presidential election drama
The 2024 US presidential race has added another layer of complexity to market dynamics. The tight contest between Donald Trump and Kamala Harris has injected volatility, with market participants reacting to potential policy shifts depending on the outcome of the election.
KEY PRESIDENTIAL ELECTION MOMENT IN 2024: The October 2024 US presidential debate between Vice President Kamala Harris and former President Donald Trump created heightened uncertainty in the market, which led to increased volatility in the US 500. And as Elon Musk’s SpaceX was busy catching its Super Heavy rocket booster with giant mechanical arms, traders and investors were trying to catch the right moment to adjust their portfolios.
And then there were the…
Inflationary pressures
Despite efforts to cool inflation, persistent price pressures have continued to challenge both consumers and businesses, particularly in the early part of 2024. Sectors such as consumer staples and healthcare may benefit from rising costs, while more rate-sensitive industries, like real estate, could struggle to maintain momentum.
2024 US inflation high point: 3.5% - March
2024 US inflation low point: 2.4% - September
Geopolitical tensions
Rising geopolitical tensions, particularly involving Eastern Europe and the Middle East, have rattled global markets. The US 500 has not been immune to these shocks, as investors react to the potential for supply chain disruptions, fluctuating energy prices, and overall uncertainty.
2024 crude oil high point: $86 - April
2024 crude oil low point: $66 - September
Speculation phases
Bullish sentiment among certain investor groups, particularly in the technology sector, has fueled speculative trading, amplifying market moves. However, bouts of risk aversion have also led to significant sell-offs, especially in cyclical sectors like financials and industrials.
And now…five of the biggest US 500 moves this year
Here are five instances the US 500 price responded to critical fundamental events this year, including central bank policies, global economic data, and geopolitical events.
Past performance is not a reliable indicator of future results.
1: January 2024
The US 500 surges by 3% in a single session
A strong earnings season kicks off with major technology companies like Apple and Microsoft posting better-than-expected results, boosting the technology sector. Easing concerns around inflation also contribute to renewed optimism among investors, driving the index higher.
2: April 2024
The US 500 falls by 5.5% over three trading sessions
The market tumbles as higher-than-expected inflation numbers stoke fears that the Federal Reserve will need to raise interest rates further. This expectation hits rate-sensitive sectors like real estate and utilities, causing widespread selling across the market.
3. May 2024
The US 500 rallies by 6% over four days
Positive corporate earnings from major tech and energy companies drive optimism, along with stronger-than-expected GDP growth data. Hints from the Federal Reserve about pausing rate hikes further fuel the market, leading to significant gains, especially in the technology and financial sectors.
4. August 2024
The US 500 drops by 7% during first week of the month
Fears of a global economic slowdown weigh heavily, as weaker-than-expected data from China and concerns about a potential European recession lead to widespread selling. A major tech earnings miss exacerbates the decline, particularly in the technology and consumer discretionary sectors.
5. September 2024
The US 500 declines by 4% across two trading sessions
Rising geopolitical tensions in the Middle East cause a spike in oil prices, which raises concerns about increased business costs and inflationary pressures. This sends shockwaves through energy-sensitive sectors like transportation and manufacturing, leading to broad market volatility.
Sources: Reuters, Bloomberg, Yahoo Finance, AP
Past performance is not a reliable indicator of future results.
Upcoming events
Event: ISM services PMI: 5 November, 9:00am UTC
Why it matters for the US 500: The ISM Services PMI reflects the health of the US services sector, which makes up a large portion of the economy. A strong PMI reading could boost the US 500 by signalling growth, while a weak reading may raise concerns about a slowdown, potentially dragging the index lower.
Event: US producer price index: 14 November, 1:30pm UTC
Why it matters for the US 500: The PPI tracks wholesale price changes and can signal future consumer inflation. A higher PPI could indicate rising costs for businesses, which might hurt corporate profits and weigh on the US 500, while a lower PPI could provide relief for the index.