Bump And Caution
December 10, 2024
November was an unusually flat month for both bonds and domestic large caps. The latter, in particular, enjoyed a post-election bump then remained elevated for the remainder of the month. Even so, they did decline slightly on November 15 which may have been in response to Federal Reserve Chairman Jerome Powell’s Economic Outlook1 remarks from the previous evening. For the month, though, the S&P 500 returned 5.4% and the NASDAQ posted +5.45%. Bond markets, tracked by the Bloomberg US Aggregate Total Return Value Unhedged Index, stayed strong despite an early-month decision by the Fed to cut interest rates and closed the month up 1.51%. International markets were split with the MSCI World Index returning +4.25% for the month and appearing to mirror large cap action. Emerging markets, as tracked by the MSCI Emerging Markets Index and returning -3.82% for November, moved in the opposite direction and remained at lowered levels after experiencing a post-election decline.
The eyes of the nation, and world, were on the U.S. presidential election this month. While recent presidential elections have taken several days to tally, the victory by Republican candidate Donald Trump over sitting Vice President and Democratic candidate Kamala Harris was swift and decisive enough for the Associated Press to call him as the winner only a handful of hours after polls closed. Buoyed by this news, investors undertook strategies that had found success after Trump’s 2016 victory and equity markets immediately rallied the day after the election. And, to little surprise, volatility—as reported by the CBOE Volatility Index (“the VIX”)—experienced a one-day drop of 20.60% which is an indicator of not only of market strength but of optimism. The S&P 600, which tracks small caps, was similarly lifted and small caps closed up 6.09% for the day following the election. This is significant when compared to the 2.53% the S&P 500 returned that day. Just before election day we published our piece, Presidential Elections and the Stock Market, which has insight into how elections have historically impacted markets.
The aforementioned Economic Outlook1 report was presented at the Federal Reserve Bank of Dallas. Although Powell’s report was nominally positive, and noted recent growth, he still had a few remarks surrounding stubborn inflation data that may have worried investors. While Bloomberg's World Interest Rate Probabilities(WIRP) indicate that markets are still anticipating a year-end rate cut, it seems the likelihood of the Fed holding off on cuts until March of next year is much greater. Although unemployment numbers have remained historically low Powell did note they had risen in the past year. The unemployment summary published by the Bureau of Labor Statistics2 late in the month echoed similar sentiments and noted that October’s unemployment numbers were elevated in some hurricane-stricken areas after the landfall of both Hurricanes Helene and Milton.
The final Federal Reserve meeting of the year is set to beheld during the third week of December. And while investors will most certainly be monitoring the central bank’s decisions regarding interest rates, we believe that the strong growth and performance of markets during 2024 can, at least temporarily, lay calm to any investor anxiety.
Hazel Allen
Portfolio Management Analyst
1https://www.federalreserve.gov/newsevents/speech/powell20241114a.htm
Published November 14, 2024; Accessed December 1, 2024
2https://www.bls.gov/news.release/metro.nr0.htm
Published November 27, 2024; Accessed December 1, 2024
The MSCI World Index is an unmanaged free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The MSCI Emerging Markets Index consists of 23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is afloat-adjusted market capitalization index.
The Bloomberg U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented.
The CBOE Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
The S&P SmallCap 600 Index is a stock market index established by S&P Global Ratings. It covers roughly the small-cap range of American stocks, using a capitalization-weighted index.
Bloomberg's World Interest Rate Probabilities (WIRP) is a tool that estimates the interest rates that major central banks in the developed world will set after each meeting over the following year. WIRP is a measure of investor expectations, which can have real-world consequences.
The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics and serves as a principal agency of the U.S. Federal Statistical System.
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