Markets shifted last week as tech names gave way to "value" stocks.
Economic data was better than expected last week, but a deeper look reveals there are still concerns. The latest projections by the Atlanta Fed show the potential for a strong GDP print for the 3rd quarter, currently at +3.4%. And while last week's Retail Sales number was stronger than expected for September (+0.4%), the trend has been lower in 2024. Since peaking in January of this year, year-over-year sales are down to +1.7% from January's +5.3%. In fact, a recent survey shows that nearly 2 in 5 cardholders have maxed out a credit card or come close in 2024. The Jobless Claims data was lower last week, after spiking the previous week. However, even if we factor out states affected by damage from hurricanes Helene & Milton - FL, GA, NC, SC, TN - the trend in claims is higher and near the peak in June of last year.
When we see divergences in valuations for a sector or segment of the market, we need to be mindful of history.
If we look at current equity valuations, not only are U.S. equities at the top end of the range, but far above the 90th percentile. Even if we back out highly-priced tech names, U.S. equities are running far above normal valuations. Utilities, which led all equity sectors last week, are running above normal performance ranges. The Utilities sector is generally considered a safe haven during periods of economic uncertainty, but due to the excitement of AI and the power demand required, utilities has become a bullish trade. Current trends should be watched carefully as we navigate forward toward year-end.
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