Week in Review: November 15, 2024

November 18, 2024

Recap & Commentary

Markets ended the week lower as the initial excitement of Donald Trump’s election victory dissipated, while strong retail sales figures, underwhelming inflation data, and comments by multiple Fed speakers raised questions as to the timing and pace of future rate cuts.

Immediately following Trump’s election victory, markets moved higher in anticipation of his second term resulting in lower taxes and less regulation.  However, with markets at record highs, valuations stretched, deficit spending likely to continue under Trump, and uncertainty as to how some of his policy initiative will unfold, investors took the opportunity to lock in profits following an exceptionally strong run in which the S&P 500 has gained 64% since the start of 4Q22, including 23% year-to-date through Friday.

Comments by multiple Fed speakers suggested that against a backdrop of positive economic data and having already cut rates by 0.75% since September, the Fed will likely be patient with future rate cuts. Speaking on Thursday, Fed Chair Jay Powell said, “the economy is not sending any signals that we need to be in a hurry to lower rate.” On Friday, Boston Fed President Susan Collins stated another rate cut in December is not a “done deal.” In response, market expectations for a December rate cut fell from 83% to 62%.

The same factors that weighed on equity markets also weighed on bond markets which resulted in the 10-Year Treasury yield rising to its highest level since July. The increase in longer-term rates have also been felt in the mortgage market, as 30-year mortgage rates have risen ~0.70% to 6.80% since the Fed’s September rate cut.

Economic Commentary

Inflation made little progress in October toward the Fed’s longer-term target of 2% highlighting two facts, 1) inflation’s return to 2% was never going to be linear, and 2) the closer inflation gets to 2% the longer it will likely take and the more gyrations it will experience. On a headline basis, consumer inflation (CPI) rose 0.2% driven by a 0.4% increase in shelter prices which accounted for over half the overall increase. Compared to a year ago, headline prices rose 2.6%, up from September’s 2.4% pace. Excluding food and energy prices, core CPI rose 0.3% for the month and 3.3% from a year ago. Both figures were unchanged from September’s levels. Since May, core CPI has fallen just 0.1%. With the Fed having cut rates by 0.75% since September, there is some concern that looser monetary policy coupled with expected tax cuts could reignite upward pressure on prices, hampering the Fed’s efforts to cut rates further.

Consumers continued to spend at a healthy rate in October as retail sales rose 0.4%, ahead of the expected 0.3% increase. In addition, September’s retail sales figures were revised up from 0.4% to 0.8%. While core retail sales dipped 0.1% in October, September was revised up to 1.2%, from 0.7%.

Industrial production fell 0.3% in October, a slight improvement from September’s 0.5% decline. October’s data was impacted by the recent Boeing strike and lingering effects from hurricanes Milton and Helene.

Of Note

Through Friday, 93% of S&P 500 companies had reported 3Q24 earnings. Thus far, 75% have beaten their earnings estimate, According to industry group FactSet, consolidated earnings growth for the quarter is expected to be 5.4%.

Market Indices   (As of 11/15/2024)

• Manufacturing PMI
• Services PMI
• Housing Starts
• Existing Home Sales
• Consumer Sentiment
• Weekly Jobless Claims