Market Update: November 4, 2024
Economic data for the week included U.S. GDP growth showing another strong quarter, as did personal income and spending. Manufacturing data continued to contract, as has been the trend over the past several years. The monthly employment situation report was far weaker than prior months, below lower expectations, due to the impacts of hurricanes and a major labor strike.
Equities fell back last week with mixed company earnings call commentary and higher interest rates. Bonds fell back as yields continued to move higher, with concerns over fiscal spending. Commodities fell back as geopolitical concerns related to the Middle East faded a bit.
U.S. stocks fell back as a whole last week, with notable weakness in large cap growth offset by lesser declines in value and minimal change in small cap stocks. By sector, communications gained over a percent (mostly Alphabet/Google) to lead, while technology (Apple, Microsoft, and NVIDIA), utilities, and energy all lost several percent for the week. Real estate also fell by -3% along with higher long-term interest rates. On Thursday, markets took a downward turn after quarterly reports from Microsoft and Meta especially. Despite decent Q3 numbers, this appeared to be due to continued concern over high levels of AI infrastructure spending, and an uncertain timeline for this capex to translate into sales. Obviously, the higher the price ratios rise for such companies, the greater the market sensitivity to potential disappointment. Sentiment on Friday improved dramatically as a weak jobs report (albeit weather- and strike-driven) provided more hope again for keeping Fed rate cuts on track. With such a close national election race, removing the uncertainty will be a key theme of the coming week.
For those keeping track of the 30 stocks in the Dow Jones Industrial Average, NVIDIA and Sherwin-Williams will replace Intel and Dow Inc. on Fri., Nov. 8. (Notably, stocks with rising financial market dominance and/or strong recent price performance may find themselves in a better position to be added; and vice versa.) The index is tweaked periodically in attempts to make it look representative of the overall economy, but the tight concentration, arbitrary selection of stocks, and price-weighted construction continue to make the DJIA less popular of a bogey for institutional investors than the S&P 500. But, it’s been in existence since 1896, back when indexes were painstakingly calculated with paper and pencil, so some likely feel compelled to keep the brand and return history intact. The popular media continues to report on its levels as the headline number, with the S&P 500 only a secondary mention in many cases.
Speaking of the S&P 500, it was a busy week for earnings with nearly half of member firms reporting last week. Per FactSet, 70% of the index has now reported, with three-quarters seeing a positive earnings surprise and 60% a positive revenue surprise. The blended year-over-year growth rate current falls at 5.1%, which would represent five straight quarters of growth, but only about half the pace of the especially-strong double-digit Q2-2024 reading. The term ‘bottom’ has been used increasingly by executives in earnings calls, which traditionally has been a positive sign for upcoming earnings recoveries (as FactSet expects for Q4 and 2025 as a whole).
Foreign stocks fared similarly to U.S. equities, with negative returns, aside from Japan, which gained. European GDP growth improved (0.4% in Q3), which tended to lower expectations for a more dovish ECB rate cut policy looking ahead. In the U.K., yields rose as a new budget was announced. It included a variety of expected actuarial-like adjustments to assets and liabilities that allowed for increased spending; while taxes were also increased, markets perhaps felt spending was not directed to areas thought to be productive. The response could be enough to suspend at least one BOE planned rate cut. Japanese stocks rose sharply on Monday, as the ruling party failed to secure a majority of seats in the House of Representatives. This was considered a strong upset, in a nation where political surprises are considered unusual. While it was assumed this might result in an easier Bank of Japan, which has been prone to avoid tighter policy under uncertain conditions, comments were less dovish, where higher implied rates supported the yen. Emerging markets were less China-driven for a change, with declines in Brazil and Mexico related to weaker commodities and trade policy uncertainty surrounding the U.S. election, and in South Korea and Taiwan, with poor returns for U.S. tech stocks, to which those markets tend to be correlated.
Bonds lost ground as interest rates continued to tick higher during the week, along with concerns over sticky inflation and loose post-election fiscal spending. Floating rate bank loans and high yield outperformed traditional bonds with minimal declines. Foreign bonds were also weak, due to a stronger U.S. dollar.
Commodities lost ground for the week, led downward by energy and industrial metals, while ag was little changed. Crude oil prices fell over -3% last week to $69/barrel, which mostly occurred early in the week as Israeli strikes on Iran were generally insignificant, with the likely intent of de-escalation.
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.