Week in Review: November 8, 2024

November 12, 2024

Recap & Commentary

Markets ended the week higher as they embraced Donald Trump’s election victory. All three major US indices- S&P 500, Dow Jones Industrial Average and NASDAQ- ended the week at new record highs, with the S&P 500 recording its best week in a year. As every investor knows, markets hate uncertainty, of which there was plenty prior to the election. The decisive outcome removed much of that uncertainty as reflected in the CBOE Volatility Index (VIX) falling 32%, its largest weekly decline since December 2021.

The market’s positive response to Trump’s victory was predicated on the belief that his second term will generally be marked by lower taxes- for example Trump has said he would like to cut corporate taxes from 21% to 15%- and less regulation; a combination which markets typically embrace. Trump has also proposed other policy initiatives such as higher tariffs on Chinese goods, increased domestic energy production, and the removal of millions of undocumented immigrants, the economic impacts of which are uncertain.

On Thursday, in a widely expected move, the Federal Reserve cut rates by 0.25% at the conclusion of its November FOMC meeting. Asked afterwards about the potential path for future rate cuts, Fed Chair Jay Powell said, “as we move ahead, we are prepared to adjust our assessments of the appropriate pace and destination as the outlook evolves” without addressing specifically if the Fed will cut rates again at its December meeting. For its part, markets ended the week pricing in a 65% chance for an additional 0.25% rate cut in December, down from 83% a week ago.

Through Friday, 91% of S&P 500 companies had reported 3Q24 earnings. Thus far, 75% have beaten their earnings estimate, while 60% have beaten their revenue estimate. According to industry group FactSet, consolidated earnings growth for the quarter is expected to be 5.3%.

Economic Commentary

The services sector surprised to the upside, expanding in October at its fastest pace since July 2022, according to industry group Institute for Supply Management (ISM). A sharp uptick in employment, which rose to its highest level in a year, helped drive the improvement. New orders were also strong, albeit slightly slower than in September. Overall, the report pointed to continued strong demand for services.

Consumer sentiment rose for the fourth consecutive month, reaching its highest level since April thanks to improved expectations regarding future economic conditions. Importantly, one-year inflation expectations declined by 0.1% to 2.6%, however, 5-year inflation expectations rose 0.1% to 3.1%.

Weekly initial jobless claims rose 3K to 221K but remained at levels consistent with health labor markets. In a separate report, government figures showed unit labor costs i.e., how much a business pays its workers to produce one unit of output, rose 1.9% in 3Q24.  Economists worry that at current levels, higher labor costs could complicate the Fed’s efforts to return inflation to 2%.

Of Note

China unveiled a new $1.4T stimulus package to help stabilized the economy.  The measures effectively allow local governments to shift some of their debt onto Beijing’s balance sheet. The new measures did not specifically address the country’s struggling property market.

Market Indices   (As of 11/08/2024)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Retail Sales
• Industrial Production
• Weekly Jobless Claims