Weekly Market Update – November 22, 2024

Quick Takes

• Stocks rallied last week, largely wiping out the prior week’s losses. The S&P 500 Index and the Nasdaq Composite Index gained about +1.7% for the week, but small cap stocks were the big winners, with the Russell 2000 Index jumping +4.5%.
• The U.S. Dollar Index climbed another +0.8%, its eighth straight week of gains. That and poor PMI surveys overseas, plus uncertainty about potential Trump trade tariffs, put pressure on the MSCI EAFE Index, which slipped -0.1%. Emerging markets were up +0.2%. 
• U.S. Treasury yields slipped a bit with the 10-year U.S. Treasury yield down -4 basis points to 4.40% and the Bloomberg U.S. Aggregate bond index rose +0.2%. But non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, were down -0.4%.

Source: Bloomberg. Data as of November 22, 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.

Markets rally on solid economic and earnings reports

Stocks rallied last week, largely wiping out the prior week’s losses. The S&P 500 Index is within 0.5% of its all-time high after gaining +1.7% for the week. The Nasdaq Composite Index was also +1.7% and is just 1.5% off its record close. Small cap stocks were the big winners of the week, with the Russell 2000 Index jumping +4.5%. The gains came despite rising geopolitical tensions in the ongoing war between Russia and Ukraine. Semiconductor chip company Nvidia delivered strong quarterly results, and the continued rally in bitcoin took the cryptocurrency near the $100K price milestone. Investors were feeling optimistic about the strength of the consumer — and the upcoming holiday season – as the Consumer Discretionary sector was the leading sector, advancing +1.4% for the week. The Wall Street Journal points out that “at least 10 retailers recently raised their sales or earnings guidance for the current fiscal year to reflect continued spending, including Walmart, Gap, TJX, Ralph Lauren, BJ’s Wholesale Club, Home Depot, and e.l.f. Beauty.”  

The U.S. Dollar Index continued its strength, climbing +0.8% for the week to a two-year high, its eighth straight week of gains. That and poor PMI surveys overseas, along with uncertainty about potential Trump trade tariffs, put pressure on non-U.S. stocks and bonds. Developed market international stocks (as measured by the MSCI EAFE Index) slipped -0.1%. Emerging market stocks (the MSCI Emerging Markets Index) did slightly better, with a +0.2% gain for the week. Concerns about the incoming Trump administration curbed risk appetites in China, with the Shanghai Composite Index falling -1.9% and the blue chip CSI 300 dropping -2.6%.

Bond investors remain focused on the Federal Reserve and on clues around the pace of interest rate cuts. Speaking on Wednesday, Federal Reserve Governor Lisa Cook stated that “the disinflationary process is continuing” and that she sees the appropriate path of short-term interest rates to be downward. However, she noted that the magnitude and timing of rate cuts should be driven by inflation and labor market data. The benchmark 10-year U.S. Treasury note retreated a bit, falling -4 basis points over the week to close at 4.40%. Bond prices and yields move in opposite directions, and the Bloomberg U.S. Aggregate Bond Index rose +0.2% for the week. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, were down -0.4%.

The Week Ahead

Economic data will be heavy with housing data in the holiday-shortened week. S&P CoreLogic and the FHFA each release their respective home price indexes on Tuesday, as well as New Home Sales. Weekly MBA Mortgage Applications are Wednesday, along with Pending Home Sales. The more heavily watched report will be the Federal Reserve‘s preferred inflation data, the Core version of the Personal Consumption Expenditures (PCE) Price Index on Wednesday. 

Other economic data to watch this week include the Conference Board‘s Consumer Confidence Index for November on Tuesday, then the Durable Goods report for October, and the Federal Open Market Committee will publish the minutes from its early November monetary-policy meeting on Tuesday afternoon. U.S. stock and bond markets will be closed on Thursday for Thanksgiving before a half day of trading on Friday.

Chart of the Week

The final reading of the October University of Michigan Consumer Sentiment Index slipped to 71.8 from the preliminary reading of 73.0 two weeks ago, where economists expected it to stay. That is still a seven-month high and up from the prior month’s reading of 70.5, but it remains far below the prepandemic peak of 101 in February 2020 and the post pandemic high of 88.3 in April 2021. The Current Economic Conditions component slipped to 63.9 from the initial estimate of 64.4 and is down from the prior month’s 63.9. On the other hand, the Consumer Expectations component was revised down to 76.9 from the initial estimate of 78.5 but is up from 74.1 the prior month. One-year inflation expectations were +2.6%, down from the +2.8% initial estimate and from the prior month’s level of +2.7%. The five-year inflation expectations level rose to +3.2% from the +3.1% prior estimate and is up from last month’s level of +3.0%.  

Not surprising was the impact of the election on the underlying party affiliation trends. Virtually every presidential election party change sees a corresponding change in Consumer Sentiment by party affiliation despite the overall level being relatively unchanged. A burst of confidence among Republicans after Donald Trump’s victory in the presidential election was offset by dashed hopes among Democrats. As shown in the chart below, the post-election Expectations Index results this month are a mirror image of November 2020. Bloomberg notes that “with Trump’s election, Republicans’ confidence in the trajectory of the economy is soaring,” adding that “for the first time since Biden entered office, Republicans rather than Democrats held a more optimistic economic outlook.” Again, the overall net result shows that Americans think the economy will improve in the next six months, but the survey shows uncertainty about the potential effects of Trump’s policies. Recent releases of GDP and PMI data continue to show the economy growing at a stronger-than-expected pace in 2024, and there’s little evidence a slowdown could materialize in the near term. It’s too early to know how a new administration’s policies will impact the economy, but financial markets have reacted positively so far.

Expectations Index, by Self-Identified Political Party

(February 2017 – November 2024, Monthly)

Source: University of Michigan

Did You Know?

EARNINGS SEASON STATS – Of the more than 1,800 stocks that reported Q3-2024 earnings results in the last five weeks, 64.7% beat consensus analyst earnings per share (EPS) estimates. Health care (71.2%) and technology (69.7%) had the strongest EPS “beat” rates, while materials (51.4%) and utilities (54.4%) had the weakest. (Source: Bespoke)

DRAWER CARD – After cash, the number one requested holiday gift of U.S. consumers is gift cards (38%), but a recent study found that 43% of Americans are in possession of at least one unused gift card, and the average total balance across all their cards is $244. (Sources: Statista, Bankrate)

TURKEY RALLY – Since 1945, the S&P 500’s average performance in the week before Thanksgiving has been a gain of +0.75%, with gains 67% of the time. In the 15 years when the S&P 500 was already up at least +20% year to date, the median performance in the week before Thanksgiving was identical at +0.75%. (Source: Bespoke)

This Week in History

JFK ASSASSINATION – On November 22, 1963, stock markets plunged as news emerged that President John F. Kennedy had been assassinated in Dallas. The New York Stock Exchange closed early that Friday and stocks rebounded when it reopened Monday. From that date through Friday, November 22, 2024, the S&P 500 has averaged an annual total return of +10.7% (Source: The Wall Street Journal, Bloomberg)

Economic Review

• The preliminary “flash” S&P Global U.S. Composite Purchasing Managers Index (PMI) was 55.3 in November, up from 54.1 the prior month. Levels above 50 indicate economic expansion, while levels below 50 indicate contraction. The Manufacturing PMI improved to 48.8 from 48.5 the prior month, a bit light of expectations for 48.9. The Services PMI jumped to 57.0, a 32-month high, up from 55.0 the prior month, where it was expected to stay. The service side of the economy — such as retailers, banks, and hospitals — employs most Americans and has driven the expansion since the pandemic. The S&P Global “flash” PMI surveys are among the first indicators of each month to give a sense of how well the U.S. economy is doing. New Orders, a sign of future sales, rose sharply to the highest level in more than two years. Employment fell for the fourth month in a row. Commenting on the data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: “Rising optimism and renewed hiring in manufacturing hinted at the upturn becoming more broad-based in the coming months,” adding, “the prospect of lower interest rates and a more pro-business approach from the incoming administration has fueled greater optimism.”
• The Conference Board’s Leading Economic Index (LEI) fell again in October, declining -0.4%, worse than the Wall Street forecast for a -0.3% drop, which is what the prior month’s fall was after being revised higher from -0.5%. The index has declined in 30 of the last 31 months (rising only in February 2024). Breadth of the index was poor, with 7 of the 10 indicators tracking negative for the month, 1 was positive, and 1 was unchanged. Stock Prices were the biggest contributor, rising +0.12%. ISM New Orders were the biggest detractor for the fourth straight month, falling -0.18% after a -0.20% decline the prior month. The LEI Coincident Index was unchanged for the second month in a row. Meanwhile, the LEI Lagging Index fell -0.1% after falling -0.3% the prior month. 
• Homebuilder confidence jumped to a 7-month high in November, according to the National Association of Home Builders (NAHB) Housing Market Index (HMI), which rose to 46 from an unrevised 43 the prior month, above expectations for 42. A year ago, the index stood at 34. The index is based on a 0-to-100 scale, where any number over 50 indicates a good reading, and below 50 is considered negative sentiment. The Current Sales component was up +2 points to 50, Future Sales (in the next six months) rose +7 points to 62, and Traffic of Prospective Buyers increased +3 points to 34. The improvement across the board reflects rising confidence following the election on the belief that the new administration will bring regulatory relief and ease conditions for more construction. For the month, 31% of builders reported cutting home prices, down from 33% the prior month. The average price reduction slid to 5% from 6% the prior month after spending more than a year at 7%. The use of sales incentives beyond price cuts slipped to 60% from 62%. 
• Manufacturing in the Federal Reserve’s Third District fell to -5.5 in November after a +10.3 rise the prior month, according to the Philly Fed Manufacturing Business Outlook Survey. That was far below expectations for +8.0 (readings above zero indicate economic expansion) and just the second negative reading of the year. However, New Orders fell -5.3 points to +8.9 from +14.2 the month before. The Shipments component fell -2.9 points to +4.5. The Employment index improved to +8.6 from -2.2. The Six-Month Business Outlook jumped +19.9 points to +56.6. The Prices Paid index slipped to 26.6 from 29.7.
• The Kansas City Fed Manufacturing Survey rose to -2 in October from -4 the month before. That was better than expectations for -5. The component indexes that comprise the headline were mixed. Those for production, new orders, and raw materials inventory pointed toward contraction, while those for employment and supplier delivery time signaled expansion.
• October Housing Starts fell -3.1% to a seasonally adjusted annual rate of 1,311,000 units, more than twice the expected decline of -1.5% to 1,334,000 units and down from the prior month’s negatively revised 1,353,000 units, or -1.9% decline (originally 1,354,000 and -0.5%). Housing starts peaked at 1,800,000 units in April 2022. Mortgage rates began their climb to 7% in October, which prompted home builders to pull back on the construction of new single-family homes. That drop in single-family starts dragged down the overall figure. Single-family homes fell -6.9% in the month, while multi-family units were up +9.7%. New construction starts were down -28.7% in the Northeast, -10.2% in the South, and up +4.6% in the West and Midwest. Meanwhile, Building Permits, one of the leading indicators tracked by the Conference Board, fell -0.6% to 1,416,000, following the prior month’s -3.1% drop to 1,425,000 units (revised down from -2.9%). That was much worse than the expected +0.7% rise to 1,435,000 units. Single-unit permits were up +0.5%, while multi-unit permits for buildings dropped -3.0%. Regionally, permits slipped -2.7% in the West, were down -0.8% in the Midwest, but rose +11.7% in the Northeast and +0.9% in the South.
• Home sales posted the first year-over-year increase since July 2021 but are expected to remain sluggish in the near term. The National Association of Realtors (NAR) reported that Existing Home Sales rose +3.4% in October to a seasonally adjusted annual rate of 3.96 million units, just above expectations for 3.95 million units and up from the 3.83 million units reported the prior month. Year-over-year existing sales were up +2.9% versus the -3.5% annual rate the prior month. The Median Existing Home Price rose to $407,200, breaking three consecutive monthly declines after seven months of increases. That is the highest price ever for the month of October. Year-over-year, home prices were up +4.0%, up from +3.0% the prior month. The Inventory of Homes for Sale was up +0.7% from the prior month and +19% from last year, to 1.37 million units, which is the highest level since October 2021. Unsold Inventory is at a 4.2-month supply, down from 4.3 months the prior month. Homes Listed for Sale remained on the market for 29 days on average, up from 28 days the previous month. First-Time Buyers were 27% of sales in the month, up from 26% the month before. Historically, these buyers make up closer to 40% of home sales, but affordability has been hit hard in the last two years due to fast-rising home prices and higher mortgage rates. All-Cash Sales fell to 27% of transactions from 30% the prior month. Homes sold above list price were 19%, down slightly from 20% a month ago. For the month, sales rose in all four regions: the Northeast was up +2.2%, the South was up +2.9%, the West was up +1.3%, and the Midwest was up +6.7%.
• Weekly MBA Mortgage Applications rose +1.7% for the week ending November 15, following the prior week’s +0.5% increase. The Purchase Index was up +2.0% following a +1.9% rise the prior week. The Refinance Index was up +1.8%, following the prior week’s -1.5% dip. The average 30-Year Mortgage Rate rose to 6.90% from 6.86% the prior week, the highest level since early July and eighth straight week of increases.
• Weekly Initial Jobless Claims fell -6,000 to a seven-month low of 213,000 for the week ending November 16, better than expectations for 220,000 and the lowest level of claims since May. The prior week was revised down to 216,000 from the original 217,000 reported. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose +36,000 to 1,908,000 in the week ending Nov 9, greater than expectations of 1,880,000. Last week’s reading of 1,873,000 was revised down to 1,872,000.

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.