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December Market Commentary: A New Economic Regime Takes Shape Thumbnail

December Market Commentary: A New Economic Regime Takes Shape

Markets & Economy

November Recap and December Outlook

With the shift to a new administration underway, attention is on its pro-business stance, including plans for deregulation and potential tax reductions. The incoming leadership may extend some key provisions of the 2017 Tax Cuts and Jobs Act that were originally scheduled to end in 2025.

For now, the Federal Reserve’s approach to interest rates remains in focus. While the Fed continues to follow a cautious and data-driven approach, it seems likely that Chairman Jerome Powell will stay in his role.

Let’s dig into the data:

  • Job Market Resilience: Non-farm payrolls rose by 227,000 in November, surpassing expectations of 214,000. October’s figures were revised upward by 36,000, while the unemployment rate ticked up to 4.2%.
  • Inflation Trends: Over the 12 months ending in October, the Consumer Price Index (CPI) climbed 2.6%, moving away from the Fed’s 2% target.
  • GDP Growth: The economy grew at a 2.8% annual rate in the third quarter, driven by consumer spending and government expenditures. This fell short of the 3.1% growth predicted by economists.
  • Consumer Confidence: The University of Michigan’s index of consumer expectations reached 74, its highest level since April.
  • Mortgage Rates: Rates continued their downward trend, with early December levels dropping to 6.69%, the lowest since October.

What Does It All Mean?

The strong job numbers and GDP growth might make the Federal Reserve pause on lowering rates. However, the rise in the unemployment rate might allow for the expected final 2024 rate cut of 25 basis points.

The recent CPI increase might show stalling progress on inflation, but Fed Governor Christopher Waller said forecasts show inflation continuing to fall over the medium term. The Fed aims to remove some restrictive monetary policies put in place when inflation was higher. The drop in inflation from 9% to just above 2% supports moving towards a more neutral rate.

A major concern for investors is the housing market. Low supply and high prices have locked out many potential buyers, and rising mortgage rates have worsened the problem. Relief may come in 2025.

Median home prices hit $437,000 in October, up from $426,800 in September, according to the U.S. Census Bureau. However, home price growth is expected to normalize in 2025, according to Redfin. Over the second half of 2024, price growth settled into a 4% annual pace, similar to pre-pandemic levels. This is the projected level for 2025, according to Redfin.

Mortgage rates have trended down recently, which is good news for sellers and buyers. While rates are expected to keep falling, the path may be bumpy, and the final rate for 2025 may not be as low as buyers hope. The consensus expectation is for rates to reach a low of 6.2% by the end of 2025.

Chart of the Month: Job Creation Rebounds

November Equity Market Highlights

  • S&P 500: Up 5.73%
  • Dow Jones Industrial Average: Rose 7.54%
  • S&P MidCap 400: Increased 8.66%
  • S&P SmallCap 600: Gained 10.77%

Source: S&P Global. All performance as of November 30, 2024

Consumer Discretionary led sector gains with a 13.24% increase, and the S&P 500 hit six new closing highs, moving past the 6,000 mark for the first time.

November Bond Market Highlights

  • 10-Year U.S. Treasury Yield: Dropped to 4.18% from 4.29% in October.
  • 30-Year U.S. Treasury Yield: Declined to 4.36% from 4.48%.
  • Bloomberg U.S. Aggregate Bond Index: Returned 0.84%.
  • Bloomberg Municipal Bond Index: Returned 1.73%.

The Takeaway

The estate tax exemption for 2025 rose to $13.99 million, up from $13.6 million in 2024. Initially set to expire after 2025, this exemption may now remain in place longer due to changes in policy. If your estate plan accounted for a lower exemption, it’s a good time to revisit your strategy.

Other tax provisions and regulations may also face adjustments, emphasizing the need for proactive financial planning.

Whether you’re reviewing your investments, refining your estate plan, or aligning market trends with your personal objectives, staying on top of these developments is key. At ImpactFI, we help professionals in tech create financial plans that balance sustainable investing with long-term success. Contact us today to discuss how we can support your goals and values.

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.