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S&P 500 Grinds to Record Highs Amid October Calm, Defying Fears of Market Volatility

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October has historically been a month of market jitters, with many expecting a bumpy ride. But this year, the S&P 500 continues its steady climb, hitting record highs with little sign of the feared volatility. As of now, the index has logged 45 new record highs in 2024, defying concerns about a potential pullback due to factors like rising bond yields, higher inflation, and economic uncertainty.

At the start of the month, many analysts anticipated that October could bring about a correction, spurred by ongoing macroeconomic challenges such as a possible recession, lingering inflation pressures, and higher jobless claims. But so far, the market has been resilient. Investors seem unfazed by these risks, and the S&P 500 has maintained its upward trajectory, buoyed by positive earnings reports, Federal Reserve rate cuts, and the overall strength of the U.S. economy.

Market Fundamentals Remain Strong

The current rally can be attributed to several key factors. Inflation has been cooling faster than the broader economy has slowed, and while interest rates remain elevated, the Federal Reserve has signaled the start of rate cuts, creating a more favorable environment for growth. Historically, markets respond positively to the early stages of rate cuts, provided a recession does not immediately follow.

Furthermore, GDP growth has exceeded expectations, and credit markets are performing well, suggesting underlying economic strength. These conditions have led many investors to remain bullish, hoping for a post-election year-end rally, despite the typical seasonal volatility seen in October.

The 21-21-21 Market Phenomenon

One of the key trends analysts have noted this year is the so-called 21-21-21 market: the S&P 500 is up 21% for the year, with a price/earnings ratio above 21, and the Cboe Volatility Index (VIX) hovering near 21. This rare combination signals strong performance, and the 21.9% gain thus far makes 2024 the best performing year for the index since 1997.

The rally has been broad-based, with gains spreading beyond the large-cap tech stocks that dominated the first half of the year. Since June 30, the equal-weighted S&P 500 has gained 9.5%, outpacing the more tech-heavy Nasdaq 100, which has risen just 3.1% in the same period. This shift reflects a more balanced market, with investors taking a more discerning approach to stock selection.

High Valuations, but No Immediate Risk of a Pullback

Despite the strong performance, there are signs that the rally could be reaching a peak. The S&P 500’s forward price-to-earnings ratio is currently at 21.8, which is higher than historical averages and suggests that the market is fully valued. In the past, valuations this high have been difficult to sustain, except during periods of extreme market euphoria like the dot-com boom or the pandemic bull run.

However, while high valuations may limit long-term returns, they do not necessarily imply an imminent correction. As long as corporate earnings continue to grow and the Fed remains in easing mode, the market can continue to climb. According to FactSet, third-quarter earnings are projected to grow by around 7% annually, and the outlook for future quarters remains optimistic.

Unusual Volatility

One of the most striking features of the current market is the elevated level of the VIX, which measures expected volatility in the S&P 500. Despite the index hitting new highs, the VIX remains near 21, which is unusually high for a rising market. Typically, a low VIX accompanies a strong rally, but the elevated reading this time reflects uncertainty around upcoming events, such as the 2024 U.S. presidential election and potential geopolitical tensions, especially in the Middle East.

Although this heightened demand for protection against sharp market moves is notable, it doesn’t signal widespread fear. Investors continue to maintain high levels of equity exposure, suggesting confidence in the broader market. According to Deutsche Bank, equity exposure is currently at the 60th percentile, which is just above neutral, and most surveys show declining levels of bearish sentiment.

Cash on the Sidelines: A Misleading Narrative

Despite some speculation that the large balances in money market funds could soon flow into equities, analysts caution against this assumption. Money market assets now total $6.5 trillion, but less than half of that is held by retail investors, and much of it is earmarked for non-equity purposes. As Bank of America points out, wealth-management clients’ cash allocations are already below average, meaning there isn’t much dry powder left to push stocks higher.

However, this doesn’t mean the bull market is in jeopardy. The combination of decent yields on cash and bonds holding their value allows investors to maintain higher equity exposure without feeling the need to rotate out of stocks.

Conclusion: Cautious Optimism for the Rest of the Year

While the S&P 500 has performed remarkably well this year, with gains continuing into October, there are signs that the rally may be slowing. Valuations are high, volatility is elevated, and the market’s resilience is being tested by economic and geopolitical uncertainties. Still, the fundamental drivers of the rally—growing earnings, a dovish Fed, and strong GDP growth—remain intact. Investors should be mindful of potential risks but can continue to expect positive market performance in the near term.

Economic Concerns Drive Young Voter Engagement in the Upcoming US Presidential Election

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With the US presidential election looming, both parties are increasingly focused on a crucial demographic: young voters. Economic issues, particularly inflation and housing costs, are emerging as significant motivators for this group as they head to the polls.

For 21-year-old Isabella Morris from Rosenberg, Texas, this election marks her first opportunity to vote. Balancing part-time work with childcare responsibilities, she and her husband struggle to make ends meet while living in a small one-bedroom apartment. Despite managing to pay off their debts, Isabella expressed concerns about their lack of savings and the precariousness of their financial situation. “We can’t afford any mistakes. One job used to be enough to live on, even at a minimum wage. Now it feels like we’re barely scraping by,” she shared. Her economic fears will guide her voting decisions in November, although she remains undecided about which candidate to support.

Isabella is among approximately 8 million young people voting in a presidential election for the first time. Representing roughly one-third of the electorate, voters under 35 are becoming a focal point for both parties, with polls indicating that the economy tops their list of priorities this election cycle. A recent Gen Forward Survey conducted by the University of Chicago revealed that while issues like reproductive rights and gun violence garner attention, young voters aged 18-26 prioritize economic growth, income inequality, and poverty above all else. This marks a shift from the 2020 election, where COVID-19, racism, and healthcare dominated concerns.

The economic landscape presents daunting challenges for young voters, characterized by soaring rents, unaffordable housing, and stagnant job creation. Economics influencer Kyla Scanlon, who has amassed over 180,000 followers on TikTok, emphasized the grim reality for today’s youth, stating, “The overall situation has degraded,” and pointing out that young people face greater financial hurdles than previous generations.

Data from TransUnion indicates that individuals aged 22-24 carry more debt—including credit cards, car loans, and mortgages—than millennials did at the same age, with their debt growing faster than their income. “There’s no beginner mode anymore—the bottom rung of the ladder just feels completely gone,” Scanlon added. Experts suggest that these financial anxieties could galvanize young voters to participate in the election. Abby Kiesa, deputy director of the Center for Information and Research on Civic Learning and Engagement (CIRCLE), anticipates that about half of young voters will cast their ballots this year, maintaining the high turnout seen in the 2020 election.

As candidates intensify their efforts to engage young voters, they are sharpening their economic messages. Vice President Kamala Harris has built on the Biden administration’s economic initiatives, proposing a $25,000 subsidy for first-time homebuyers and a $6,000 tax credit for families with newborns. Her campaign has notably increased youth organizing efforts and leveraged celebrity endorsements to connect with younger voters. In contrast, Donald Trump has sought to capitalize on economic dissatisfaction by criticizing the current administration’s record while promising to eliminate taxation on tips and remove regulatory barriers on cryptocurrency.

Polling suggests Trump previously made gains among young voters, with many believing he managed the economy better than Biden. However, a recent Harvard Institute of Politics poll indicates that Harris now leads Trump by a significant margin among likely voters aged 18-29.

The economic climate not only motivates young voters but also inspires some to run for office themselves. Gabriel Sanchez, a 27-year-old Democratic candidate for the Georgia state legislature, is campaigning to address the financial struggles of his generation. Working as a waiter, he has faced repeated rent hikes and expressed concerns about the accessibility of stable housing. “Most of us aren’t able to own a home, afford healthcare, or buy the basic things we need,” he stated on TikTok, underscoring his desire for representation that understands the challenges facing young Americans.

Sanchez’s campaign reflects a growing trend among young candidates, with Wyatt Gable, a 21-year-old Republican primary winner in North Carolina, also entering the race. If elected, Gable would become the youngest person to hold a seat in the state legislature, and he shares Sanchez’s belief that economic concerns will dominate young voters’ minds in the upcoming election. “My generation feels it. Seeing how bad inflation is, and with interest rates skyrocketing, that’s going to be the biggest thing on young people’s minds when they go to the ballot box,” he remarked.

China’s State Planner Announces Economic Boost but Holds Back on Major Stimulus

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During a highly anticipated press conference on Tuesday, Zheng Shanjie, chairman of China’s National Development and Reform Commission (NDRC), outlined a series of measures aimed at strengthening the country’s economy. Despite these efforts, there were no announcements of major new stimulus initiatives, dampening investor enthusiasm and causing the rally in Chinese markets to lose momentum.

One key announcement was the acceleration of special purpose bond issuance to local governments, intended to support regional economic growth. Zheng emphasized that the 1 trillion yuan in ultra-long special sovereign bonds had been fully allocated to local projects. He also pledged to continue issuing ultra-long special treasury bonds next year. In addition, the central government will release a 100 billion yuan investment plan for 2024 by the end of this month.

The press briefing came as mainland China’s markets reopened after the weeklong Golden Week holiday. While markets initially surged on the news, the lack of significant new stimulus caused gains to slow. The CSI 300 blue-chip index pared its rise to 5% after an early jump of over 10%, while the Shanghai Composite and SZSE Component indices also trimmed gains to 5% and 8%, respectively.

Limited Stimulus Falls Short of Investor Expectations

Although Zheng expressed confidence that China would meet its annual growth target, his comments on the property market and domestic spending lacked detailed financial commitments, leaving some investors disappointed. Yue Su, an economist at the Economist Intelligence Unit, noted that the absence of specific figures might not be a negative indicator, as China’s pro-growth policy stance remains unchanged. Su maintained her forecast of 4.7% growth for China in 2023, with a slight uptick to 4.8% in 2025.

Shaun Rein, managing director at China Market Research Group, commented that many Western investors might take a cautious approach following the announcement. He added that without concrete fiscal stimulus, the recent rally in Chinese markets could be short-lived.

Economic Struggles Persist

China has been grappling with a sluggish economy following a disappointing recovery from COVID-19 lockdowns. Growth in the world’s second-largest economy has been hindered by weak domestic demand and a prolonged downturn in the property sector.

In the first half of 2023, China’s economy grew by 5%, meeting government targets. However, in the second quarter, growth slowed to 4.7%, marking the slowest pace since the first quarter of 2023. Inflation data has also been lackluster, with consumer prices rising by just 0.6% year-on-year in August, missing expectations. Factory activity contracted for the fifth consecutive month in September, with the official Purchasing Managers’ Index (PMI) recording 49.8, signaling continued contraction in the manufacturing sector.

Zheng acknowledged that China still faces significant challenges in achieving its growth objectives. Earlier in the year, he had emphasized the importance of coordinated macroeconomic policies, including fiscal, monetary, employment, and industrial measures, as the country continues to adjust its economic strategies.

While Beijing has introduced several stimulus measures aimed at halting falling property prices and bolstering economic performance, these actions have yet to fully reverse the slowdown. Investors remain cautious, awaiting further fiscal support from the government to reinvigorate the economy.