Weekly Market Update – November 8, 2024

Quick Takes

• A quick and decisive victory by President-elect Donald Trump fueled a strong rally for U.S. stock last week. The S&P 500 Index was up +4.7%, its best week in a year, and the small cap Russell 2000 Index was up +8.6%, its best since April 2020.
• Concerns about Trump Administration trade policies and potential tariffs, as well as more gains by the U.S. dollar, hampered international assets. Developed market international stocks were flat, and emerging market stocks were up +1.2% for the week.
• U.S. Treasury yields rose on the short end but were down for the intermediate and long maturities. The 2-year U.S. Treasury yield was up +5 basis points, but the 10-year yield was down -8 basis points. U.S. bonds were up +0.8% for the week but non-U.S. bonds fell -0.2%.

Source: Bloomberg. Data as of November 8, 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-fueled rally sends U.S. stocks soaring, volatility reeling

A quick and decisive victory by President-elect Donald Trump fueled a strong rally for risk assets last week. Markets crave clarity, and clarity on the election result was delivered much quicker than most pundits and polls were indicating. With Republicans regaining the White House and the Senate and prediction markets pointing to them retaining the House as well, U.S. stocks raced to new all-time highs on the prospects of a pro-growth, low tax, and deregulatory agenda. The S&P 500 Index was up +2.5% on Wednesday, and the small cap Russell 2000 Index jumped +5.8% for the biggest post-election day gains in modern history. That resulted in the largest one-week rally of the year for the S&P, a gain of +4.7%. The Russell was up +8.6% for the week, its best since April 2020. The tech heavy Nasdaq Composite Index was up +3.0% on Wednesday and +5.7% for the week. The strong rally in stocks sent volatility imploding, with the CBOE Volatility Index finishing the week down -32%, the largest weekly decline since December 2021.  

For non-U.S. stocks, the U.S. election result had an entirely different impact. Concerns about Trump Administration trade policies and potential tariffs stifled sentiment. The U.S. dollar appreciated +0.7% over the week, its sixth straight week of gains, which further hampered international assets. Developed market international stocks (as measured by the MSCI EAFE Index) were essentially flat but emerging market stocks (the MSCI Emerging Markets Index) were able to advance +1.2% for the week.

Normally, a week with the Federal Open Market Committee (FOMC) concluding its November meeting with a quarter point (0.25%) rate cut would be news. But in the wake of the election and equity market rally, it didn’t receive much attention. The cut was widely expected, though, and in his post-meeting press conference, Fed chair Jerome Powell didn’t speculate much on whether a Trump Presidency and fiscal policies would impact the Fed’s monetary policy. Powell maintained the Fed would remain data dependent and are just beginning to think about adjusting the pace of rate cuts and said it is in no hurry to get to a neutral policy stance. Bond yields initially jumped on the election outcome, but the benchmark 10-year U.S. Treasury note yield ended the week -8 basis points lower at 4.30%. The yield on the 30-year U.S. Treasury note was down -11 basis points at 4.47%. On the contrary, the shorter 2-year U.S. Treasury yield was up +5 basis points to close at 4.21%. The Bloomberg U.S. Aggregate Bond Index gained +0.8% for the week, but non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, were down -0.2%.

The Week Ahead

The economic calendar isn’t particularly heavy this week, but it does pack a punch. The big event will be the release of the October Consumer Price Index (CPI) by the U.S. Bureau of Labor Statistics (BLS) on Wednesday. Bloomberg shows economists’ consensus estimate is for a +2.5% annual rate. Other inflation data includes the Producer Price Index (PPI) on Thursday and Import and Export Prices on Friday. On Tuesday, the NFIB will release its Small Business Optimism report, which is likely to reflect improvement from the Trump election win and surging stock market. On Friday, the Census Bureau publishes October Retail Sales. Outside the U.S., GDP will be reported for the eurozone, the U.K., and Japan. 

Third quarter earnings season is winding down with just 47 of the S&P 500 companies left to report. This week will include results from Live Nation, Home Depot, Shopify, Spotify, Occidental Petroleum, SoftBank, Cisco Systems, Under Armour, Walt Disney, Applied Materials, Sony, and Alibaba.

After the Fed reduced its interest-rate target by a quarter of a percentage last week, Fed chair Powell will participate in a moderated discussion at the Federal Reserve Bank of Dallas on Thursday afternoon.

Chart of the Week

The Institute for Supply Management’s (ISM) Manufacturing PMI fell to 46.5% in October, the lowest level since July 2023. It was short of expectations for a 47.6% reading and down from an unrevised 47.2% the prior month. The manufacturing PMI has now contracted for seven straight months and has been stuck in contraction territory for 23 of the last 24 months (levels below 50 indicate contracting economic activity). The Employment component improved a bit to 44.4% from 43.9% but remains in contraction for the fifth straight month. Likewise, the key New Orders component was up to 47.1% from 46.1% the prior month but has been stuck in contraction for 25 of the past 26 months. The Production component dropped to 46.2% from 49.8%. The Prices Paid index, a measure of inflation, surged to 54.8% from 48.3%, the largest jump since January. 

In contrast to manufacturing, the ISM Services PMI grew at the fastest pace in more than two years in October, rising to 56.0% from 54.9% the prior month. That was far above Wall Street expectations for 53.8% and the highest level since July 2022. Service-oriented companies, such as retailers, banks, and hospitals, employ the majority of Americans. Numbers over 50% indicate economic expansion. The New Orders index slipped to 57.4% from 59.4%. The Employment index jumped to a 14-month high of 53.0% from 48.1%. The Production index dipped to 57.2% from 59.9%. For services inflation, the Prices Paid index fell to 58.1% from 59.4%. The services side of the economy has powered the U.S. economy for the past few years and continues to do so despite elevated interest rates and elevated geopolitical tensions. 

Combining both the manufacturing and services sectors, the economy-weighted ISM Composite PMI increased by +1 point to 55.0, its highest level since September 2022.

Services sector powered the economy forward again in October

U.S. Contribution to Headline ISM Services (January 2020 – October 2024)

Source: Haver Analytics, EY-Parthenon.

Did You Know?

FAIL TO PLAN IS A PLAN TO FAIL – According to the Bureau of Labor Statistics, just 2.6% of Americans engaged in financial planning on an average day in 2023 compared to 4.5% 20 years ago. Those 2.6% spent 59.4 minutes doing it, up from 48.6 minutes in 2003. (Source: Motley Fool)

BEST ELECTION YEAR SINCE 1936 – The S&P 500 has averaged a Year-To-Date gain of +5.2% through October of Presidential Election years since 1928, but this year’s +19.6% gain (through 10/31) is the strongest in an Election Year since 1936. (Source: Bespoke)

NOVEMBER STRONG – Over the last 50 years, the Dow Jones Industrial Average has averaged a gain of +2.01% in November, with positive returns 72% of the time. No other month has seen gains more than 70% of the time. (Source: Bespoke)

This Week in History

HOME BOX OFFICE – On November 7, 1972, the pay television network Home Box Office (HBO) launched. HBO grew slowly in its first years, as the nascent cable industry struggled to get off the ground, but it is now the largest pay-TV channel in the U.S. with a subscriber base of 33 million households, sales of $1.7 billion, and earnings of approximately $400 million. It is a wholly owned subsidiary of Time Warner Entertainment (Source: Company-Histories.com).

Economic Review

• The preliminary reading of the November University of Michigan Consumer Sentiment Index jumped to a seven-month high of 73.0 from 70.5 the prior month, beating expectations for 71.0. The results were driven entirely by growing optimism for the economy in 2025. The Current Economic Conditions component was 64.4, down from last month’s 64.9 reading and short of expectations for 65.5. The Consumer Expectations component, however, jumped to 78.5 from 74.1, well ahead of expectations for 75.0 and the highest reading since the summer of 2021. The latest survey was completed before the election, but as the election approached, Republicans became more confident about the outcome while confidence among Democrats fell, the index showed late last month. The expectations index is still below the pre-pandemic high of 92.1, however. One-year inflation expectations slipped a bit to +2.8% from +2.9%, where it was expected to stay. 5–10-year inflation expectations were up a tick to +3.1%, though, versus expectations to stay at +3.0%. 
• U.S. Consumer Credit rose slightly by $6.0 billion in September, which was well short of expectations for $12.2 billion and down from the prior month’s $7.63 billion (which was revised lower from the initially reported $8.93 billion). That’s just a +1.4% annual growth rate, down from a scant +1.8% annualized growth rate the prior month. Credit use typically rises in an expanding economy, but Americans have restrained their use of credit cards and other short-term debt in the past year. However, lower-income families are maxing out on credit. Growth for revolving credit, such as credit cards, ticked up by +0.9% following a -1.2% dip the prior month. Nonrevolving credit, which tends to be much less volatile than revolving credit and includes auto as well as school loans, increased +1.6% following the prior month’s +3.3% rise. The data from the Federal Reserve is not adjusted for inflation and does not include mortgage loans, which is the largest category of household debt. Americans have been increasingly relying on credit cards and other forms of financing to support spending as wage growth slows, pandemic savings fade, and higher prices continue to bite.
• The final S&P Global U.S. Manufacturing Purchasing Managers Index (PMI) for October was revised up to 48.5 from the preliminary estimate of 47.8 two weeks ago, remaining in contraction for four months now (levels above 50 indicate economic expansion, while levels below 50 indicate contraction). Manufacturers continued to reduce Employment, and New orders decreased for the fourth month running with respondents citing uncertainty ahead of the Presidential Election as a key reason for the declines. The best news in the report may have been the increasing confidence that output will expand over the coming year, with sentiment rising for the second month running to the highest since May. Commenting on the data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said: “The US manufacturing downturn extended into its fourth successive month in October, marking a disappointing start to the fourth quarter for the goods-producing sector. Although the rate of decline moderated, order books continued to deteriorate at a worryingly steep pace, and a further build-up of unsold stock hints at further production cuts at factories in the coming months unless demand revives.” Like the competing ISM report, the S&P Global U.S. Services PMI reported decent growth along with slower price pressures in October, but at a slightly slower pace at 55.0, down from 55.2. New Orders grew at a solid pace that was broadly in line with that seen in September despite signs of weaker international demand. Business Confidence in the year-ahead outlook revived from a 23-month low in September. Meanwhile, Employment continued to fall marginally as firms scaled back staffing levels marginally amid uncertainty over future demand. On the Prices front, companies raised their prices charged at the joint-slowest pace in almost four-and-a-half years despite a further sharp increase in input prices. Combining the manufacturing and services PMIs resulted in the S&P Global U.S. Composite Purchasing Managers Index (PMI) coming in at 54.1, slightly up from 54.0 the prior month.
• The Commerce Department reported U.S. Factory Orders fell -0.5% in September, in line with expectations and up from the -0.8% tumble the prior month (revised sharply lower from the initially reported -0.2%). That’s the fourth decline in the last five months. Factory Orders Ex-Transportation were up +0.1, up from -0.2% the prior month (revised lower from -0.1). Durable Goods Orders for long-lasting items such as televisions, appliances, and transportation equipment were down -0.7%, a slight improvement from the -0.8% initial estimate where they were expected to stay and up from -0.9% the prior month. Durable Goods Orders Excluding Transportation were up +0.5, slightly higher than expectations for +0.4%, which was the unrevised initial estimate. The important Core Capital Goods Orders (capital goods excluding volatile sectors like transportation and defense), a proxy for business spending, was up +0.7%, up from the initial estimate of +0.5%. Core Capital Goods Shipments, which are factored into GDP, fell -0.1%, up from the initial estimate -0.3%.
• According to the U.S. Bureau of Economic Analysis, the U.S. Trade Deficit widened to a 30-month high of -$84.4 billion in September from -$70.8 billion the prior month. That was slightly wider than the -$84.0 billion expected. Smaller trade deficits help contribute to economic growth, while larger deficits inhibit growth. The higher gap in September depressed GDP in the third quarter by about 0.6 percentage points (GDP rose at a +2.8% annual pace for the third quarter). Imports were the primary contributor to the wider deficit as businesses rushed to bring in imported goods ahead of the holiday shopping season. Imports rose +3.0% to a record $352.3 billion. Shipments of foreign-made consumer goods shot up by $4 billion to mark the largest gain in almost two years. Exports, primarily Capital Goods and Consumer Goods, fell by -1.2% to $267.9 billion after setting a record the prior month. 
• The Census Bureau reported Wholesale Inventories for September fell -0.2%, a tick below the prior month’s -0.1% where they were expected to stay and the first decline in six months. Year-over-Year (YoY) inventories were up just +0.5%, well below the typical +4% to +6% annual increase in strong economies. Inventories are goods produced for sale that have not been sold yet. Inventories have only added to GDP growth once in the past five quarters and subtracted -0.2 percentage points from the headline +2.8% annual increase in GDP for the third quarter. Wholesale Trade Sales were up +0.3%, an improvement from the prior month’s +0.2%, which was revised up from the initial -0.1% decline reported. Wholesale inventories data isn’t adjusted for inflation. The Inventory-to-Sales Ratio was down a tick to 1.34 months from 1.35 months. The ratio reflects how long it would take a company to sell all the goods sitting on warehouse shelves.  
• Weekly MBA Mortgage Applications sank -10.8% for the week ending November 1, following the prior week’s 0.1% slip. The Purchase Index was down -5.1% following a +5.0% rise the prior week. The Refinance Index plunged -18.5%, following the prior week’s -6.3% fall. The average 30-Year Mortgage Rate rose to 6.81% from 6.73% the prior week, the highest level since late July and sixth straight week of increases.

• Weekly Initial Jobless Claims rose +3,000 to 221,000 for the week ending November 2, better than expectations for 222,000. The prior week was revised higher to 218,000 from 216,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) jumped +39,000 to 1,892,000 in the week ending Oct 26, far above expectations for 1,873,000. Last week’s reading of 1,862,000 was revised down to 1,852,000.

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.