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New York CNN
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Investors seem to believe that the Federal Reserve is done raising rates after it paused for the second consecutive time at its meeting on Wednesday.
But declines in small-cap stocks suggest that worries about the US economy’s health still linger on Wall Street.
The Russell 2000 index, which tracks the performance of US small-cap stocks, last Friday touched its lowest level since November 2020 after turning negative for the year earlier in October. The index is down 5% for the year, underperforming the benchmark S&P 500 index’s 10% gain.
Small-cap stocks rose during the spring, helping broaden the market’s rally beyond just Big Tech heavyweights and raising hopes among investors that the then-burgeoning bull market had staying power. A bulk of small-caps are financial stocks, whose recovery some view as key for a sustained rally. Strong banks uphold a strong economy and stock market, the wisdom goes.
But the stock rally fizzled out mid-summer, and has struggled to find footing since. The Israel-Hamas war led investors to seek out havens like gold, while surging bond yields have made holding cash the most attractive it’s looked in years.
That decline reflects pessimism about the economy’s health, as investors grapple with elevated interest rates and geopolitical strife, says Jim Polk, head of equity investments at Homestead Funds.
While the labor market and broader economy have stayed remarkably resilient since the Fed began its aggressive inflation-fighting campaign, some economists and investors warn that the economy has yet to feel the brunt of the central bank’s monetary policy tightening, which has brought the benchmark lending rate to its highest level in more than 22 years.
Small-cap stocks tend to be an indicator of economic strength, because they generate most of their revenue domestically. Smaller companies are also more sensitive to rising interest rates, which make it harder to access capital, and rising costs for line items like labor. The concern is that as tough economic conditions eat away at smaller companies’ balance sheets, they will eventually catch up to larger companies.
“It will be probably difficult for the Russell [index] to rally or show any leadership in that type of environment,” said Mona Mahajan, senior investment strategist at Edward Jones.
The Fed on Wednesday kept future rate hikes on the table, citing persistent inflation that’s yet to fall to the central bank’s 2% target. Fed Chair Jerome Powell also said that Fed officials have yet to even consider cutting rates.
Still, Mahajan says that small-cap stocks could be set up for a rally, especially if the economy sees renewed growth next year.
History shows that small-cap stocks tend to gain following broader market downturns: The iShares Russell 2000 exchange-traded fund has outperformed the S&P 500 for the two years following four out of six bear markets from 2007 to 2020, according to Penn Capital Management data.
Polk sees opportunities in beaten-down energy and financial stocks. His firm manages a small-cap fund with investments in both sectors.
Still, small-caps are “certainly not a buy, buy, buy,” said Polk.
The Fed holds interest rates steady for second time
The Federal Reserve held interest rates steady Wednesday for the second consecutive meeting, leaving the central bank’s benchmark lending rate at its highest level in 22 years, reports my colleague Bryan Mena.
Economists and financial markets had expected the pause in the Fed’s aggressive rate-hiking campaign, after several Fed officials signaled they anticipate a further slowing of the US economy as it continues to absorb the effects of higher borrowing costs.
The Fed’s post-meeting statement noted that “economic activity expanded at a strong pace in the third quarter” — a recent development that has puzzled some economists.
Despite the Fed aggressively raising interest rates 11 times since March 2022 in a bid to combat inflation, the US economy has not only avoided a recession so far, but instead expanded at a blistering 4.9% annualized rate in the third quarter, mostly due to solid consumer spending.
Turkey prices drop as Thanksgiving planning ramps up
Something wild has happened with turkey prices that’s going to make the cost of cooking the Thanksgiving meal more palatable to families on a tight budget, reports my colleague Parija Kavilanz.
“There’s been a big collapse in retail prices for turkey,” said Michael Swanson, chief agriculture economist with Wells Fargo Agri-Food Institute.
“Because turkey prices are down so much, and that’s the centerpiece of the meal, celebrating Thanksgiving at home will be more advantageous this year for families,” he said.
Store prices for the 10-to 15-pound turkey, typically the star of the holiday dinner, have dropped 13% in October compared to the same month last year, said Swanson.
The decrease in shelf prices for the bird also coincides with an even more dramatic 29% slump in the wholesale price for turkey this October versus a year ago, according to Wells Fargo’s new Thanksgiving food report, which was released Wednesday.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
