Weekly Newsletter: December 2, 2024
Investors have a lot to be thankful for this year. The SP500 is up over 25% on the year after tagging on another 6% in November. Small stocks were the standout winner for the month, rising nearly 10%. Retailers are lamenting the short sprint to yearend, as the Christmas “selling” season is a week shorter due to the late Thanksgiving. The economic data will be coming quickly too, as the usual beginning-of-the-month data dump gets started on Monday and culminates in the jobs report on Friday. Expectations are for a rebound in the number of jobs added to the economy last month, as October’s data was skewed by the hurricanes and Boeing strike. The debate will then begin as to whether the Fed will cut rates again, providing an early Christmas present for Wall Street at their meeting in two weeks. Barring any big surprises, 2024 should finish the year in very good shape.
The economic data from last week did little to dissuade investors that the Fed will be cutting rates by a quarter point in two weeks. Even as the inflation data remains relatively high at 2.5- 3%, still above the Fed’s 2% target. Weekly jobless data remains in the range of 2016-2019, indicating a still decent job market, with few layoffs. The here and now looks pretty good in investor’s eyes, but the concern has shifted to the wide range of possibilities of the incoming administration. The Tariff talk, especially now with Mexico and Canada (our two largest trade partners) has some concerned that inflation could pop higher and see weaker overall growth. Trade data will be watched closely over the next couple of months to see if US companies are stockpiling goods ahead of what may be an ugly trade war.
After having been battered for much of the past two-plus months, the bond market rallied to close out November. The modest return on bonds this year comes on the heels of two rather poor years due to the Fed’s fighting of inflation following the pandemic. In an unusual twist, bond yields are higher today than when the Fed began to ease rates to “normalize” rates. At the start of the year, investors had priced in rate cuts of 150 basis points or more. Today, some wonder if the Fed is moving too quickly to cut rates and feel a pause in December is warranted. The prognosticating “business” on Wall Street makes weather forecasting look nearly perfect.
The broadening out of the rally from the first half of the year seems to be taking place, as small stocks have bested the larger indices during the last half of the year. Even up until the election, international held in fairly well. Since the election, the strength of the dollar has erased all the advantage international investing had built from mid-year. What has been remarkable is the lack of correctionsin the market this year. Save for a few weeks, the momentum of the sectors within the SP500 has been in “overbought” territory all year. Typically, when the market is overbought, the forward six-month returns are poor. However, since the end of the pandemic, the returns have been among the best. Pulling back from the SP500, the various asset classes (bonds, stocks, international, etc.) have not been as overbought and may provide investors that diversify away from just the SP500, a better overall return well into 2025.
The shorter-than-usual Christmas season may work against retailers this year; however investors will remain focused on the employment report later this week and inflation data next week as the Fed gets set for their final meeting of the year in mid-December.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.