A difficult start does not always lead to a dismal end, especially in the markets. September started on a bleak note, but by the end of the month, the indices had performed surprisingly well.
To clarify, they stumbled after hearing that the manufacturing sector had declined for the fifth month, along with disappointing labor market data, which raised concerns about the economy’s direction.
However, as the days passed, the situation improved, as did the data. The Dow Jones, the S&P 500, and the Nasdaq managed to end the month in the green once again.
What is keeping this uptrend going?
In recent months, markets have vibrated with bullish sentiment, driven by optimism over a change in Fed monetary policy and hopes that AI integration will boost profits.
The latter have yet to prove themselves, so the Fed stepped in to help. In September, it cut interest rates by 50 basis points, more than the 25 that most analysts expected.
The post-meeting press release indicated that this decision was due to the fall in the U.S. consumer price index to 2.9%, below the 3% expected and closer to the 2% target.
The fact that non-farm payrolls only created 114,000 new jobs, below the 176,000 expected, while the unemployment rate rose to 4.3%, could also have influenced the decision.
So, will the S&P 500 go to 6000 soon?
While the Fed’s 50 basis point cut is a good sign, it doesn’t solve all the problems. For instance, the federal government’s borrowing costs will stay high in the coming years.
Specifically, net interest costs are projected to reach $892 billion in 2024 and nearly double over the next decade, from $1 trillion in 2025 to $1.7 trillion in 2034.
If rates remain higher than expected, costs could rise rapidly, limiting vital public investments in research, development, and infrastructure that support future economic growth.
Another challenge that interest rates do not solve is that on October 1, some 45,000 dockworkers at 36 ports in the U.S. went on strike over wages and automation, the largest such strike since 1977.
If an agreement is not reached soon, it could cost the U.S. economy $5 billion daily and potentially reignite inflation. These ports are vital trade routes for roughly half of U.S. maritime imports.
Thus, the future of the markets is far from certain, even if it may look that way right now.