Weekly Market Update – November 15, 2024

Quick Takes

• Wall Street suffered its worst weekly performance since early September and has now fallen in three of the last four weeks. The S&P 500 Index fell -2.1% last week after jumping +4.1% the week before.
• Election euphoria faded as attention returned to the Fed and inflation. Stubborn consumer and wholesale inflation reports, as well as stronger than expected retail sales and import prices, weighed on the markets as investors lowered their expectations for rate cuts. 
• U.S. Treasury yields rose again as 10-year U.S. Treasury yield was up +14 basis points and hit its highest level since early June before settling at 4.44% to end the week. The Bloomberg U.S. Aggregate bond index dipped -0.8%, negating the prior week’s gains.

Source: Bloomberg. Data as of November 15, 2024.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Election rally fizzles as inflation still sizzles

Wall Street suffered its worst weekly performance since early September and has now fallen in three of the last four weeks. The S&P 500 Index fell -2.1% last week after jumping +4.1% the week before. President-elect Donald Trump’s election win on November 5 fueled the S&P 500’s best week in more than a year following the election. But last week, the election euphoria faded, and attention turned back to the economy and the Federal Reserve (the Fed). Stubborn consumer and wholesale inflation reports, as well as stronger than expected retail sales and import prices, reminded investors that the Fed may not be done reigning in inflation. Fed Chairman Jerome Powell said as much in an interview on Thursday, suggesting the Fed may not be “in a hurry to lower rates,” causing markets to temper their expectations for rate cuts. By the end of the week the CME FedWatch tool showed the probability of a 25 basis point interest cut in December had fallen to about 58% from about 65% the week prior and was seen as almost a certainty before the election. Expectations for a full percentage point of cuts by the end of next year fell more considerably, dropping from 41% to 33%. Beyond the inflation concerns, semiconductor stocks weighed on the market following disappointing earnings from Applied Materials whose biggest customers include Intel and Taiwan Semiconductor. That took a toll on the tech-heavy Nasdaq Composite Index which fell -3.2% for the week. The small cap Russell 2000 Index also saw profit taking, dropping -4.0% following the +5.8% post-election week’s gain.  

Non-U.S. stocks weren’t immune from the downside as the U.S. dollar continued to climb higher, gaining another +1.6% over the week, its seventh straight week of gains. Developed market international stocks (as measured by the MSCI EAFE Index) were down -2.6% as political upheaval in Germany and worries about the Trump administration’s potential trade policies hampered European stocks. Concerns about Trump trade policies, a falling Yen, and slowing GDP also weighed on Japanese equities. Emerging market stocks (the MSCI Emerging Markets Index) sank -4.5% as Chinese equities fell under the prospect of U.S. tariffs and Chinese Industrial Production that was weaker than expected. 

The stubborn inflation data and hotter-than-expected U.S. retail sales sent yield on the benchmark 10-year U.S. Treasury note up to its highest level since early June and ended the week at 4.44%, up +14 basis points. Bond prices and yields move in opposite directions and the Bloomberg U.S. Aggregate Bond Index fell -0.8% for the week, offsetting the prior week’s gains. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, were down -1.6%.

The Week Ahead

Economic data for the week is on the light side, kicking off with the National Association of Home Builders’ (NAHB) Housing Market Index for November on Monday, October Housing Starts and Building Permits on Tuesday, October Existing Home Sales and the Conference Board’s Leading Economic Index (LEI) on Thursday, and S&P Global’s U.S. Purchasing Managers’ Index for November on Friday. 

Nvidia’s quarterly earnings report will be in the spotlight on Wednesday after the market close. The third-quarter earnings season is winding down with just a few other companies to report, including Lowe’s, Medtronic, and Walmart on Tuesday and Snowflake and Target on Wednesday. On Thursday, Deere and Intuit will report results.

Chart of the Week

The rate of inflation for consumer goods and services rose slightly again in October. The headline Consumer Price Index (CPI) was up +0.2%, in line with expectations and matching the prior month’s unrevised rate. However, the year-over-year (YoY) CPI grew at a +2.6% rate, up from an unrevised +2.4% rate, which matched expectations but did represent the first increase in the annual rate since March. Core CPI, which excludes the more volatile food and energy prices, was up +0.3% for the month, the third straight month at that level, which is where it was expected to remain. YoY Core CPI was +3.3%, also unchanged and matching expectations. Last month saw the first increase in the annual rate of Core CPI in a year and a half. The Federal Reserve and Wall Street generally considers the Core CPI as a better predictor of future inflation. Energy prices were flat in October but down -4.9% YoY. The Food index increased +0.2% over the month and was up +2.1% over the last year. Eggs tumbled -6.4% in October but were still +30.4% higher from a year ago. Shelter prices continued to be a major contributor to the CPI, at about a one-third weighting in the headline index, and were up another +0.4% in October and up +4.9% on an annual basis. 

Wholesale inflation picked up in October. The headline Producer Price Index (PPI) was up +0.2% for the month after a +0.1% rise the prior month (revised higher from the original flat reading), which was in line with expectations. Year-over-year (YoY) PPI increased to +2.4%, above expectations for +2.3% and up from the prior month’s +1.9% rate (which was revised up from +1.8%). Core PPI, which strips out volatile food and energy costs, was up +0.3%, up from last month’s +0.2%, where it was expected to remain. YoY Core PPI was up +3.1%, above expectations for +3.0% and up from +2.9% the prior month (revised up from +2.8%). The price of wholesale Services such as Transportation and Recreation climbed +0.3% last month and +3.5% YoY and remain the largest contributors to U.S. inflation. Raw materials prices also jumped +4.1% to mark the biggest increase in more than two years. The latest “bump” in inflation, as described by top Federal Reserve officials, may prevent them from cutting interest rates as aggressively as Wall Street had expected just a few months ago.

Inflation Perked up in October but was in line with Wall Street Expectations

U.S. Consumer Price Index (CPI), year-over-year % change

Note: Not seasonally adjusted.
Source: U.S. Bureau of Labor Statistics, CNBC.

Did You Know?

FOUR FOR FORTY – The S&P 500 Index gained +69.6% between Election Day 2020 and Election Day 2024, the fourth time in a row, dating back to the 2008 Election, that the index rallied at least +40% between U.S. Presidential elections. (Source: Bespoke)

IT’S THE ECONOMY – 68% of U.S. voters taking part in exit polls of the U.S. presidential election rated the economy as ‘poor’ or ‘not so good,’ while 75% said that inflation has caused hardship in their family over the last year. (Source: NBC News)

SCHOOL CHOICE? – 92% of parents with children in grades K through 12 agree that it is critical for their children to learn how to invest to prepare for their financial future, and 74% said that they ‘probably’ or ‘definitely’ would enroll their child in a different school if it offered financial literacy and investment courses. (Source: SIFMA Foundation)

This Week in History

SANTA FE TRAIL – On November 16, 1821, Missouri Indian trader William Becknell arrives in Santa Fe, New Mexico, sells his goods at an enormous profit, and makes plans to return the next year over the route that will become known as the Santa Fe Trail. It would become one of the most important and lucrative of the Old West trading routes across the Great Plains, helping to enable America’s western migration. (Source: History.com)

Economic Review

• Imports Prices jumped +0.3% in October, versus expectations for a dip of -0.1% and following an unrevised -0.4% decline the prior month. That’s the biggest increase in six months. Higher Energy prices were a primary contributor to the pickup in prices but are not expected to persist. Import prices ex-petroleum were up +0.2%, the same as the prior month but a tick higher than the +0.1% economists expected. Year-over-year, the cost of imports spiked to +0.8%, a sharp acceleration from the unrevised -0.1% annual rate the prior month and more than twice the +0.3% increase expected. Export Prices popped +0.8% versus expectations for a -0.1% dip and up sharply from the prior month’s -0.6% slide. Export prices slipped -0.1% over the past year, better than expectations for a -1.7% drop and last month’s -1.9% annual rate (revised lower from the originally reported -2.1%).
• U.S. Industrial Production fell to -0.3% in October following a -0.5% drop the prior month (revised lower from -0.3%). That was below expectations for a -0.4% decline. Manufacturing was down -0.5%, the fourth decline in the last five months. The strike at Boeing and by the two recent hurricanes continue to hamper activity. Excluding the Boeing strike and the hurricanes, production would have been essentially flat in October. Boeing factory workers did accept a new contract offer, ending a seven-week strike. Capacity Utilization, a measure of potential output, slipped to the lowest since April 2021 at 77.1%, matching expectations and down from 77.4% the prior month. Capacity Utilization reflects how much a manufacturing plant is being used to produce things.
• The Commerce Department reported that U.S. Retail Sales were up +0.4% in October, ahead of expectations for a +0.3% increase, and up from the +0.8% increase the prior month, which was revised two times higher from originally reported +0.4%. Retail sales represent about one-third of all consumer spending and offer clues on the strength of the economy. Sales were driven by new vehicles which were up +1.6%. Auto sales account for one-fifth of all retail sales. Sales ex-autos were up a more modest +0.1 as were Sales ex-autos and gas, though both measures were revised up from the prior month to +1.0% and +1.2%, respectively. Restaurant sales, a key economic bellwether that tends to rise when the economy is healthy, were up a sharp +0.7% in October. Sales at internet retailers, big-box stores, and home centers added to a headline increase in sales last month. The Control Group, a figure used to calculate GDP, was actually down slightly at -0.1%, short of expectations of +0.3% and down from +1.2% the prior month (revised higher from +0.7%).
• The National Federation of Independent Business (NFIB) reported that their Small Business Optimism Index rose to 93.7 from an unrevised 91.5 the prior month. That is the highest level since February 2022 but is the 34th consecutive month below the 50-year average of 98. All but the Current Job Openings component improved for the month, but it was only down -1 point and remains the highest net reading of the 10 components at +35%. The biggest improvement came from the Expect Economy to Improve component, which was up +7 points to a net -5% reading. Expect Real Sales Higher was also up a strong +5 points to a net to -4%. Overall, eight of the 10 components rose, one fell, and one was unchanged. Of note, the Uncertainty Index hit another record high for the second straight month, rising +7 points to 110. However, much of that uncertainty was due to the election, so that is expected to come down following the decisive election results. “With the election over, small business owners will begin to feel less uncertain about future business conditions. Although optimism is on the rise on Main Street, small business owners are still facing unprecedented economic adversity. Low sales, unfilled jobs openings, and ongoing inflationary pressures continue to challenge our Main Streets, but owners remain hopeful as they head toward the holiday season,” said NFIB Chief Economist Bill Dunkelberg.
• The U.S. Treasury Department recorded a Federal Budget Deficit of $257.45 billion in October as tax revenue fell while spending on health programs increased. The government’s fiscal year runs from October through September, and the first month of the fiscal year this year was nearly four times larger than the same month last year. The decline in tax receipts was due to the Internal Revenue Service letting individuals and corporations affected by natural disasters to delay filing their taxes until November 2023, which resulted in higher-than-usual receipts in the first two months of fiscal 2024. A key takeaway from the report is that the net interest outlay is running close to $1 trillion on an annualized basis.
• The latest quarterly Senior Loan Officer Opinion Survey (SLOOS) from the Federal Reserve showed little change in lending standards for large and medium firms but net tightening among small firms. For the large and medium firms, it was the lowest percentage of lenders reporting tightening lending standards since the second quarter of 2022 at 0.0%. But lending standards for smaller firms tightened with +13.3% of survey respondents tightening in the fourth quarter, up from +8.2% the prior quarter. The net percentage of banks raising credit standards for Commercial and Industrial (C&I) loans decreased from +7.9% in the third quarter to zero (0.0%) in the fourth quarter. Banks reported tighter standards and weaker demand for all Commercial Real Estate (CRE) loan categories.  For Households, lending standards were essentially unchanged for most loans, but weaker demand across most categories of Residential Real Estate (RRE). Lending standards for Credit Cards ticked down slightly from a net +20% in the third quarter to +18.4% in the fourth. The fourth quarter’s reading indicates the number of lenders easing standards was equal to the number tightening for the first time since the Fed’s tightening cycle began in the first half of 2022.  Consumer credit demand, according to respondents, changed little.
• The New York Fed’s Empire State Manufacturing Index, a gauge of manufacturing activity in the state, surged +43.1 points in November to +31.2, far above expectations for a rise to a flat 0.0 reading. That was its highest level since December 2021, driven by significant increases in New Orders and Shipments. New Orders jumped +38.2 points to +28.0, its highest level since November 2021. The index for Shipments rose +35.2 points to +32.5, its highest level since April 2022. The index for Business Conditions Expected in Six Months fell -5.5 points but remained strong at +33.2. This is the first regional Fed manufacturing survey to be released since the U.S. election on November 5. Other manufacturing surveys in recent months cited election uncertainty weighing on the outlook for activity — with that uncertainty behind, it appears surveys may begin to show some improvement.
• Weekly MBA Mortgage Applications inched up +0.5% for the week ending November 8, following the prior week’s -10.8% drop. The Purchase Index was up +1.9% following a -5.1% fall the prior week. The Refinance Index dipped -1.5%, following the prior week’s -18.5% plunge. The average 30-Year Mortgage Rate rose to 6.86% from 6.81% the prior week, the highest level since early July and seventh straight week of increases.

Weekly Initial Jobless Claims fell -4,000 to 217,000 for the week ending November 9, better than expectations for 216,000 and the lowest level of claims since May. The prior week was unrevised. The number of people already collecting unemployment claims (i.e., Continuing Claims) fell -11,000 to 1,873,000 in the week ending November 2, spot on with expectations. Last week’s reading of 1,892,000 was revised down to 1,884,000.

Asset Class Performance

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.