Stock Market Outlook: September 2024
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In this issue
What financial planners have to say about sports betting
The National Football League’s regular season starts on Thursday, Sept. 5, when the Baltimore Ravens will face the Kansas City Chiefs.
It’s a big day for football fans — and for sports bettors. Sports betting apps now allow millions of Americans to put down serious money on the outcomes of games — and on in-game events such as which team will score first — all from the comfort of their phones.
According to Goldman Sachs Research, U.S. sports betting has grown into a $10 billion industry since a 2018 Supreme Court decision allowed states to legalize it — and it could grow into a $45 billion industry in the years ahead .
That growth is apparent in the stock prices of sports betting companies such as DraftKings (DKNG). DraftKings shares have roughly doubled in price since the company went public in 2020, albeit with significant volatility since then.
Buying shares of companies that operate in the sports betting industry (like DraftKings) may add some volatility to your portfolio, but it’s still an investment in a traditional asset. So how does that stack up with sports betting itself?
Sports betting vs. investing
According to Chris Woods, a Charlotte, North Carolina-based certified financial planner, one of the biggest differences between an investing habit and a sports betting habit is long-term outcomes.
“You’re going to end up with a lot more money over the course of 10 or 20 years in the market, with consistent investing, than you would with the win-some-lose-some approach of betting on sports on a weekly or monthly basis,” Woods says.
For reference, S&P 500 index has an average total return of about 10% per year over the last few decades, or roughly 159% per decade, before inflation. That’s a level of consistency in returns that would be hard to match with any kind of betting.
» Learn about the top-performing S&P 500 ETFs.
However, Woods notes that there’s another difference between sports betting and investing, which helps explain the former’s popularity: a lot of people know more about sports than the stock market.
“Part of the problem with investing is that many people don’t understand it that much, so they just don’t do it. Sports betting feels familiar. They know the players, they know the teams, they know the sport,” Woods says.
How heavy sports betting can affect your financial health
In a paper published in July, researchers from Northwestern University, Brigham Young University and the University of Kansas looked at how sports betting has affected household investment, spending and debt management decisions since legalization.
The researchers found that sports betting tends to reduce households’ savings, as “risky bets crowd out positive expected value investments.” In other words, many sports bettors fund their bets with money they would have otherwise saved or invested.
“These effects concentrate among financially constrained households, who become further constrained as credit card debt increases, available credit decreases, and overdraft frequency rises,” the researchers wrote .
Frank Paré, an Oakland, California-based CFP, says it’s important to understand this kind of behavior in a human context — especially in the case of those “financially constrained” households.
“When households are under stress, there are studies that show that their ability to think logically kind of goes down. So the focus becomes ‘how to make money fast.’ And if you believe you have an edge because of all the information you have regarding sports, that’s going to be your go-to,” Paré says.
However, Paré says that a financially-stressed household may worsen its situation by diverting money to sports betting.
“If it’s diverting from your required living expenses, you’re putting yourself at risk of not having a stable household,” he says.
Woods adds that the opportunity cost imposed by betting money instead of investing it can make it more difficult to achieve long-term goals such as retirement. “You’re missing out on an opportunity for the consistent value creation that we’ve seen in the stock market over the long term,” Woods says.
» Get started planning for retirement with our roundup of the best IRA accounts.
Is it possible to bet on sports responsibly?
Paré and Woods both say that it’s possible for some people to enjoy sports betting in moderation, provided that they set healthy limits for themselves.
Paré says that one way to set guardrails on your sports betting is to limit it to special occasions — for example, making a small wager on the Super Bowl but not on regular-season games.
Woods adds that people should never bet money they can’t afford to lose.
“If people are going to do this, I would have them set up a budget, and put this as a line item in the budget. Treat it just as you would your other entertainment outings. So if you have a certain amount of money set aside for going to the movies, for going to concerts, for something like that, I would include it as a line item like that — as an expense,” Woods says.
But Paré and Woods both say that some people can find themselves unable to control the risks of their sports betting behavior. In other words, heavy sports betting can sometimes be a form of gambling addiction.
Anyone who thinks they may be struggling with an addiction can contact the National Problem Gambling Helpline, run by the National Council on Problem Gambling. The phone number for guidance and help is 1-800-GAMBLER (1-800-426-2537). The council also offers help via text message at 800GAM (800426), and via chat on their website.
If you feel that you are able to set healthy limits for yourself, a financial advisor can also be a good resource for gauging how much you can responsibly budget for entertainment expenses such as sports betting.
» See our list of the best financial advisors.
Term of the month: Interest rate cuts
As sports bettors get ready for the first regular-season NFL game next month, financial speculators may be anticipating the upcoming Federal Reserve meeting with similar levels of enthusiasm.
On Sep. 18, the Fed is widely expected to announce the first reduction in the federal funds rate since 2020. But why is the market expecting interest rate cuts, and what do they mean for your finances?
Why the Fed is expected to cut interest rates on Sep. 18
The Federal Reserve has raised interest rates almost a dozen times since 2021 in an effort to tamp down inflation by strategically slowing down the economy with higher borrowing costs.
Several recent economic data releases suggest that this strategy is working to tame inflation — but it may also be depressing economic activity a little bit more than investors would like.
The June consumer price index (CPI) report, published in July, showed a month-over-month decrease in overall price levels — the first monthly decrease since 2020. The July CPI report showed a modest month-over-month increase of 0.2%, and a year-over-year increase of 2.9%, which is closer to the level of the Fed’s 2% inflation target.
» Run the numbers with our inflation calculator.
Meanwhile, the Bureau of Labor Statistics’ July jobs report, published in early August, showed that the unemployment rate had ticked up to 4.3%, and that the U.S. economy had added just 114,000 jobs that month — far fewer than economists had predicted .
The worse-than-expected jobs report sparked a global stock market selloff amid fears of a U.S. recession in the near future, and spurred talk of an emergency rate cut before the next Fed meeting. These two pieces of data have increased the odds of an interest rate cut on Sept. 18.
How much and how many: What to watch for in the Fed’s announcement
The Chicago Mercantile Exchange’s FedWatch tool, which uses futures market data to gauge the probabilities of different interest rate scenarios, currently says there is about a 61% chance that the Fed will cut rates by 25 basis points in September, and about a 39% chance that it will cut rates by 50 basis points.
At the end of the Sept. 18 meeting, the Fed will likely also drop a hint about how many more rate cuts might be on the way.
After every other Fed meeting (including the September meeting), the central bank releases a summary of economic projections (SEP) showing staffers’ opinions of what the federal funds rate should be over the next few years.
The most recent SEP, released in June, showed a median federal funds rate prediction of 5.1% for the end of 2024. Given that the current rate ranges between 5.25% and 5.50%, the June SEP signaled one small rate cut by the end of 2024 .
If the September SEP shows a median federal funds rate prediction for the end of 2024 that is lower than the newly-announced rate, that’s a signal that more cuts are likely in the months ahead.
What do interest rate cuts mean for investors?
According to Meera Shireen Meyer, a CFP based in Boulder, Colorado, interest rate cuts can benefit certain sectors of the stock market by decreasing the cost of borrowing for businesses.
“A low interest rate environment is typically good for businesses (specifically consumer goods, tech, real estate, and finance sectors) and that translates to stock values increasing,” Meyer said in an email interview.
» Check out some of the best online brokers for stock trading.
Delia Fernandez, a certified financial planner based in Los Alamitos, California, added in an email interview that bond prices tend to increase when interest rates fall.
“Bond funds benefit from falling interest rates because the bonds that the funds hold were purchased at higher rates than the new, falling rates, hence the phrase, ‘when interest rates fall, bonds go up.’ The longer the maturities and duration in the bond fund, the higher they will rise in value as interest rates fall,” Fernandez said.
What do interest rate cuts mean for savers?
While interest rate cuts can benefit stock market investors by decreasing the cost of debt for businesses, they also decrease the yields that savers can earn on savings accounts and certificates of deposit (CDs).
Fernandez said that buying individual U.S. Treasury bonds with long maturities is one option for savers who want a high yield in a falling interest rate environment, as a bond held to maturity has a fixed interest rate. She also noted that Treasury bond interest is exempt from state income tax.
Meyer added that savers who don’t need their money for 1 to 2 years should consider long-duration CDs. “Putting money into a CD right now guarantees you a relatively high rate,” she said, compared to the lower rate you might earn in a high-yield savings account after interest rates drop.
» Interested in CDs? Shop the best CD rates.
Dates that could move markets this month
Economic events
Friday, Sep. 6, Bureau of Labor Statistics monthly employment report. A report showing hiring levels and various measures of the unemployment rate.
Wednesday, Sep. 11, BLS consumer price index (CPI) report. A key inflation gauge. The employment and CPI reports could give investors hints about what the Federal Reserve will do with interest rates in future meetings; unexpectedly high unemployment or low inflation could indicate that rate cuts are on the way.
Wednesday, Sep. 18, Federal Reserve interest rate decision. The Fed will conclude its monthly meeting and announce the new level of the federal funds rate. It is widely expected to announce either a 0.25% or 0.50% cut. The Fed will also release a summary of economic projections showing its estimates of future interest rates.
Friday, Sep. 27, Michigan Consumer Survey preliminary data for September. The University of Michigan will release its final data for last month’s survey on Sep. 13, and its preliminary data for this month’s survey on Sep. 27. The survey has become a closely watched indicator of ordinary Americans’ perceptions of the economy, which have been improving recently after a long period of negativity.
Earnings
Below is a table of blue-chip stocks that are reporting earnings per share (EPS) in September, with the expected dates and average analyst estimates for their upcoming earnings reports.
We’ve filtered the list for companies with a market capitalization of at least $100 billion. These are high-volume stocks whose earnings reports are often major trading events for options traders and day traders.
Company name & symbol | Expected earnings date | Consensus EPS forecast |
|---|---|---|
Broadcom Inc. (AVGO) | Sep. 5, 2024 | $0.95 |
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Source: Nasdaq.com. Data is current as of Aug. 28, 2024, and is intended for informational purposes only.
» Want to start trading options? See our picks of the best options trading brokers.
Neither the author nor editor owned positions in the aforementioned investments at the time of publication.
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