Market Update: November 25, 2024
Economic data for the week included declines in retail sales and industrial production, while producer and consumer inflation remained sticky—especially on the shelter side.
Equities lost ground across the board last week, as the post-election rally faded a bit. Bonds also fared poorly as interest rates ticked higher. Commodities also lost ground with a stronger dollar and demand concerns holding down sentiment.
U.S. stocks pulled back last week, in a reversal of pre- and early post-election gains. By sector, financials and energy eked out gains of a percent each for the week to lead, each with hopes for benefits from deregulation in the new administration, while all other sectors ended in the negative, led by an over -5% drop in health care, in addition to -3% drops in technology and materials. Health care sentiment was pulled downward by the announcement of Robert Kennedy, Jr. as nominee to lead the Department of Health and Human Services (responsible for nearly a quarter of the Federal budget within Medicare, Medicaid, and others), who’s had an extensive history of being critical of big pharma and vaccines, and has held some views seen as non-traditional in the medical community.
Markets weren’t overly disappointed with the Wednesday CPI report, with ‘steady’ being acceptable enough to not raise worries of the Fed halting their easing path. Though, comments from Fed Chair Powell on Thursday affected stocks negatively for several days, especially in that the FOMC doesn’t need to be “in a hurry to lower rates” and that current economic strength allows the committee “to approach our decisions carefully.” This was translated to a slower rate cut path than was previously assumed, with expectations for a December cut falling from about 80% to about 60%, and the number of cuts in 2025 fading, with even a possible stop mid-year at around 4.00%. This is in sharp contrast to the 3.00%-ish level expected just a few months ago.
Foreign stocks fell back, along the same magnitude as U.S. stocks generally, with the added headwind of a weaker U.S. dollar. Europe fared best insofar as a smaller decline (minimal in local terms, made worse by the dollar effects), with emerging markets ending in last place. U.K. GDP growth in Q3 decelerated from 0.5% to 0.1%, with slightly better expectations for core Europe, though the entire region continues to lag robust U.S. growth. In EM, an over -5% decline in China, as investors attempted to digest potential adverse trade effects, was coupled with poor returns in South Korea and Taiwan, which tend to be correlated with the technology sector as a general rule. Overseas, there have been obvious concerns over post-U.S. election effects in regard to possible trade policies/tariffs that could prove more damaging to foreign nations than to U.S. consumers, but markets no doubt also realize a lot is yet to be determined/finalized, and lower valuations already tend to reflect this uncertainty.
Bonds fell back again as interest rates continued to tick higher—with a less dovish path for Fed cuts in the coming year as well as concerns over rising Federal deficits/debt. The 10-year Treasury yield rose by nearly 15 basis points on net to end the week after reaching a level of 4.5% briefly. Senior floating rate bank loans outperformed, with small gains, while traditional bonds performed similarly on the downside, with governments outperforming investment-grade corporates a bit. Foreign bonds were down across the board due to a sharply stronger dollar.
Commodities fell back broadly, not helped by the rising dollar, with small gains in agriculture offset by declines in energy and metals. Crude oil prices fell -5% last week to $67/barrel, due to the dollar’s effects, ample supplies, and continued demand fears abroad.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.