• Equity indices enjoyed a decent third quarter, led by Chinese stocks
• S&P 500 completed five consecutive positive months
• Q3 earnings announcements to gradually take centre stage
• US equity indices look vulnerable at this stage

 Stocks fared decently in Q3, outlook is challenging

 The third quarter (Q3) of 2024 was a plentiful one, with the key central banks finally embarking on their monetary policy easing journey. Most stock indices recorded a decent performance in Q3 but only a few achieved strong gains. The S&P 500 index saw a mediocre return of 5.5%, with the real estate and utilities sectors contributing the most to this rally, and the technology sector lagging after three consecutive quarters of strong gains. The European indices were the laggards once again, despite the DAX 40 index recording a decent 6% quarterly gain.

Chinese stocks shined in September

Focusing on September and, courtesy of the latest round of support measures announced by the Chinese administration, both the Hang Seng and Shanghai composite indices led the advance by recording double-digit returns, and thus reversing their rather abysmal performance during 2024. Their outlook remains mixed, as there are increasing voices that the new measures could prove ineffective in tackling the housing market problems, and thus restarting the Chinese economy.

US stock indices finished September in the green with the S&P 500 index seeing a 2% gain, its fifth consecutive positive month. This is not a rare occurrence for this index, but, interestingly, it has not managed to experience a sixth straight green month since August 2021.

On the back of Nvidia’s recent shenanigans, and despite the lower funding rates after the Fed rate cut, technology stocks underperformed in September. Interestingly, despite some recession fears resurfacing after certain weak US data releases, the consumer discretionary sector led the rally last month, followed by the more traditional utilities sector, which tends to be preferred by investors in strenuous times.

Looking ahead: more Fed rate cut and US election

The final quarter for 2024 has started in an eventful fashion, mostly due to the unfolding developments in the Middle East. And it could become even more hectic, as there is a plethora of a few high-profile events on the menu during the next three months, including the November 5 US presidential election.

Traditionally, stocks tend to perform well when the Fed is easing its monetary policy stance and there is a lack of recession talk. This could be the case again this time, provided that the US data does not abruptly turn very negative. Interestingly, the US presidential election complicates the outlook even further, as investors tend to be more defensive ahead of these big events.

Q3 earnings round begins next week

Amidst these developments, certain firms have already announced their Q3 earnings, but the official start date is probably October 11, when the main US banking institutes will start publishing their results. The week starting on October 21 is probably the most important one as Alphabet, Microsoft, Tesla and Amazon will report.

S&P 500 looks vulnerable from a technical perspective

The recent events in the Middle East have caused a risk-off reaction in the market with the US dollar rallying and the S&P 500 index feeling a bit shaky, just a few days after recording another all-time high. The recent series of higher highs and higher lows is still intact, but there are some early signals that the recent upleg has probably concluded. Friday’s labour market data, predominantly the non-farm payrolls figure, could materially affect the short-term outlook of the S&P 500 index.