November Market Commentary: A Historic Election Offers Some Clarity

October Recap and November Outlook

The recent election season, filled with twists and turns, concluded with the re-election of President Donald Trump, easing some uncertainty for financial markets. The general belief that markets dislike ambiguity was confirmed by the post-election rally as investors embraced a clearer direction.

What impact will the continued Trump administration have on the economy and markets? The President's preference for lower interest rates is well-known, but early reactions seem more focused on the potential for higher tariffs and tougher immigration policies, which may push inflation upward.

As the Federal Reserve remains cautious, it's likely to hold off on any major moves until January, awaiting further clarity on policy direction. Nonetheless, this administration could bring a shift to the economic landscape, where interest rates may see only a slow decline instead of a steep drop.

Let’s dig into the data:

Non-farm payrolls increased by 12,000 in October, falling short of the Dow Jones forecast of 100,000 jobs, while the unemployment rate held steady at 4.1%.
Consumer Price Index (CPI) decreased slightly, with a 2.4% annual increase through September, moving closer to the Fed's 2% target.
Gross Domestic Product (GDP) grew at a 2.8% annual rate in Q3, mainly fueled by a rise in consumer spending, which increased 3.7% annually compared to 2.8% in Q2.
Consumer confidence surged, with the Conference Board index gaining 9.5 points in October, its biggest jump since 2021, driven by positive sentiment about business and job prospects.
Federal Reserve rate cut: The Fed reduced rates by 25 basis points, bringing the target rate to 4.50%-4.75%.

What Does It All Mean?

The non-farm payrolls figure of 12,000 jobs, the lowest since December 2020, was attributed to disruptions like the Boeing strike and recent hurricanes. While the number was disappointing, it doesn't signal a weakened economy or job market instability.

Meanwhile, consumer spending, the primary driver of GDP, rose by 0.5% in September, a sign that rising incomes are helping to offset inflation’s impact. The economic landscape remains stable, with low inflation, a strong job market, and a generally optimistic consumer base—all conditions the administration will inherit despite public dissatisfaction with the previous status quo under President Biden.

Following the election, markets rallied, particularly the Russell 2000 Index, as smaller firms anticipate benefits from new domestic policies. Bond yields also rose, indicating expectations for economic growth as investors adopt a "risk-on" stance. However, this shift could also hint at concerns over potential inflation and higher interest rates tied to the administration's policy choices.

In the Federal Reserve's first meeting post-election, a 25-basis point rate cut was approved. Fed Chair Jerome Powell noted diminished downside risks but emphasized the Fed's "middle path" approach, balancing inflation trends with a strong labor market.

Chart of the Month: The Trump Trade

While campaign promises don't always lead to policy, markets responded to the President's statements by translating his positions into strategic action.

Source: Data from FactSet via WSJ; Chart: Axios Visuals

Equity Markets in October

S&P 500: -0.99% for the month
Dow Jones Industrial Average: -1.34%
S&P MidCap 400: -0.77%
S&P SmallCap 600: -2.71%

Source: S&P Global, all data as of October 31, 2024

After a positive month, the S&P 500 experienced a Halloween dip as the "Magnificent 7" stocks erased their gains, turning the index slightly negative. Of the 11 sectors, eight showed positive performance, with Financials leading (+2.55%), while Healthcare lagged (-4.73%). As of the month’s end, over 72% of S&P 500 companies had reported Q3 results, with both earnings and sales reaching new highs, a trend expected to continue into 2025.

Bond Markets in October

The 10-year U.S. Treasury ended the month at a yield of 4.29%, down from 3.78% the prior month.
The 30-year U.S. Treasury ended October at 4.48%, up from 4.13%.
The Bloomberg U.S. Aggregate Bond Index returned -2.48%.
The Bloomberg Municipal Bond Index returned -1.46%.

The Takeaway

In the months ahead, election results will likely dominate news headlines, but the end-of-year period is a valuable time for investors to focus on aligning personal financial goals with market opportunities:

Tax-advantaged savings: With just a few pay periods left, ensure that your retirement and other tax-advantaged accounts are fully funded to maximize both savings and tax benefits.
Charitable contributions: If giving back is part of your financial plan, consider establishing a Donor-Advised Fund (DAF) for added flexibility in charitable donations.
Cash strategy: With interest rate changes likely under the new administration, reviewing your cash holdings may be wise, especially with potential rate reductions on the horizon.
Stay focused: News-driven volatility is possible, but keeping sight of your own financial plan remains key.

Combining personal goals with an informed market view is essential to financial success. Whether you’re evaluating investments or revisiting financial priorities, we're here to provide guidance. Reach out today to start planning for the new year and align your portfolio with your goals!

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