40 Trillion Gallons
Despite finishing the week mostly flat, the fourth quarter got off to a good start as the September jobs report came in unexpectedly strong, and the port strike appears to have been averted. That’s not to say that investors aren’t considering all the risks. This week the issues in the Middle East appear to have escalated with perhaps the inclusion of Iran more directly in the mix. Additionally, October tends to be the month where things occasionally go wrong, and this one is perhaps even more consequential with headline risk leading up to the election. However, instead of focusing on what may happen, let’s look at what is happening and take it a week at a time.
The S&P 500 finished September on a strong note which tends to put it on good footing for the remainder of the year. September usually finishes lower, as it has lost 0.60% on average since World War II, according to CFRA data. But this year, the S&P 500 rose 1.6% bucking the trend. The fourth quarter tends to be more optimistic as investors look toward the new year. More importantly, positive performance in September during election years since 1945 has led to a gain in October nearly 80% of the time, according to Sam Stovall, CFRA’s chief investment strategist. Of course, past events are not guarantees of what will happen this year, but the odds are on our side.
Perhaps the best news this week was the September Nonfarm Payroll data which reported that payrolls jumped 254K in September, far stronger than the 132K expected and the 159K growth in August. With robust job creation, the unemployment rate fell to 4.1% from 4.2%, marking the second consecutive month of decline. Job growth was found primarily in health care, government, social services, and construction. Construction growth should persist as mortgage rates continue to fall and demand picks up. Additionally, retail jobs should increase as the holiday season approaches. The flip side of this data is that the Federal Reserve may slow its planned interest rate cuts. The seesaw between inflation and employment appears finely balanced now. The need for another big rate cut is diminishing although further smaller rate cuts are expected both this year and next.
As for the dockworkers strike, we can all breathe a big sigh of relief. The union that represents 85,000 dockworkers along the East and Gulf coasts threatened its first strike since 1977, affecting 36 ports from Maine to Texas. As consumers, the port strike would have made for a difficult holiday shopping experience and likely driven up prices. As investors, the port strike could have cost the economy an estimated $4.5 billion daily and shaved a half percentage point off U.S. GDP in the fourth quarter. The union had been looking for a 77% wage hike and had rebuffed the offer of a 50% raise. From early reports, it looks like a tentative agreement has been reached that would raise the average wage from $39 per hour to $63 per hour over the life of the contract. Dockworkers will continue to work through January 15, 2025, as further negotiations take place specifically regarding a ban on automation.
Switching gears, I bet you’ll never guess the best performing sector in the third quarter. For quite some time, the “magnificent seven” have been the primary driver of returns for both the Nasdaq and S&P 500. It may come as a surprise to learn that these seven stocks (Alphabet, Apple, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla) trailed the S&P 500 in the third quarter. Also interesting is that all seven companies are performing worse than they did compared to 2023. So, what was the best-performing sector in the third quarter? Utilities. The utilities sector, as represented by the Utilities Sector SPDR ETF (XLU) generated a total return of nearly 18.6% in the third quarter compared to the S&P 500 which gained 5.5%.In closing, I turn to Hurricane Helene and the havoc and devastation it wrought on the Southeastern United States. I read this week that only 2% of homes in the affected regions had flood insurance either because it is too expensive or because people didn’t think they lived in a flood zone. But here’s the kicker. Calculations by former NOAA chief scientist Ryan Maue indicated that 40 trillion gallons of rain fell on the Southeast from the hurricane. This is such a large number that perhaps some comparisons are in order. 40 trillion gallons would fill the Dallas Cowboy’s stadium 51,000 times. It would fill Lake Tahoe once. It would fill more than 60 million Olympic-size swimming pools. And lastly, it is the equivalent of 619 days of constant water flow over Niagara Falls. Now you know.
Bruce J. Mason, MBA