Economic Update 12-2-2024

• On a holiday-shortened week, economic data included U.S. GDP coming in unchanged from the initial estimate, higher home prices, but a drop in durable goods and new home sales, with some negative hurricane effects.
• Equities gained globally, with foreign outpacing U.S. due to a weaker U.S. dollar. Bonds also fared positively, as interest rates fell back upon a positive reaction to the new administration’s Treasury secretary nominee. Commodities fell as fading Middle East concerns negatively affected the prices of oil and gold.  

U.S. stocks continued upward, with several indexes in large, mid, and small cap reaching further all-time highs. In an abbreviated trading week, Monday started positively, with the nomination of hedge fund manager Scott Bessent for Treasury secretary, which was seen as a conventional choice. Bessent is viewed as relatively market friendly and pragmatic, while also a promoter of lower fiscal deficits and more tempered/gradual tariff policy, which removes some risk of more extreme and unanticipated trade policy repercussions. At the same time, the president-elect surprised markets by posting the intention of imposing 25% tariffs on both Mexico and Canada, our largest trading partners, in addition to an extra 10% on China, all related to flows of illegal immigrants and fentanyl, and 100% tariffs on EM countries that supported attempts to replace the U.S. dollar as the global reserve currency. However, news of a cease-fire agreement between Israel and Hezbollah had a positive influence on sentiment.

Thanksgiving Update 

As we celebrate Thanksgiving, it is a time to reflect on the economic progress that has been made and express gratitude for the resilience of healthy markets. The moderation of inflation, steady growth, and promising outlook for both equities and fixed income serve as reminders of the strength and adaptability of the economy. While uncertainties remain, the foundations for a stable and prosperous future are in place, giving us much to be thankful for this season.

The U.S. economy has demonstrated remarkable progress toward achieving a "soft landing," where economic growth slows without tipping into recession. As of now, U.S. real growth has settled at a healthy 2.7% year-over-year rate, and inflation has moderated to 2.7%. When excluding housing, inflation drops further to 2.1%, inching closer to the Federal Reserve's long-term target of 2%. While inflation remains slightly above this goal, the Federal Reserve has found it appropriate to begin reducing policy rates, signaling a more stable economic environment.

Economic Update 11-18-2024

• Economic data for the week included declines in retail sales and industrial production, while producer and consumer inflation remained sticky—especially on the shelter side.
• Equities lost ground across the board last week, as the post-election rally faded a bit. Bonds also fared poorly as interest rates ticked higher. Commodities also lost ground with a stronger dollar and demand concerns holding down sentiment.

U.S. stocks pulled back last week, in a reversal of pre- and early post-election gains. By sector, financials and energy eked out gains of a percent each for the week to lead, each with hopes for benefits from deregulation in the new administration, while all other sectors ended in the negative, led by an over -5% drop in health care, in addition to -3% drops in technology and materials. Health care sentiment was pulled downward by the announcement of Robert Kennedy, Jr. as nominee to lead the Department of Health and Human Services (responsible for nearly a quarter of the Federal budget within Medicare, Medicaid, and others), who’s had an extensive history of being critical of big pharma and vaccines, and has held some views seen as non-traditional in the medical community.

Economic Update 11-11-2024

• Economic news for the week included the U.S. Federal Reserve cutting the Fed funds rate by another quarter-point. In terms of data, ISM services ticked higher, remaining in strong expansion, and productivity saw gains in Q3, although labor costs rose as well.
• U.S. stocks gained ground for the week following the conclusion of the Presidential election, while foreign stocks saw mixed results. Bonds fared positively as yields pulled back from recent highs. Commodities were mixed, with gains in energy offset by a decline in metals.

U.S. stocks were little changed in the early part of the week, before the results of Tuesday’s general election. The strong Republican showing resulted in a strong rally starting Wednesday, with votes still being counted to determine the composition of the House and possible red sweep. The general hope for markets with this political arrangement is lower corporate taxes, a light-touch regulatory environment, and stronger upcoming earnings growth. The ends of election seasons have also tended to prompt a ‘relief rally’ of sorts historically. The FOMC rate cut was icing on the cake, although expectations for next year have become less dovish. Small caps fared especially well, as would be expected in such an environment.

Economic Update 11-04-2024

• Economic data for the week included U.S. GDP growth showing another strong quarter, as did personal income and spending. Manufacturing data continued to contract, as has been the trend over the past several years. The monthly employment situation report was far weaker than prior months, below lower expectations, due to the impacts of hurricanes and a major labor strike.
• Equities fell back last week with mixed company earnings call commentary and higher interest rates. Bonds fell back as yields continued to move higher, with concerns over fiscal spending. Commodities fell back as geopolitical concerns related to the Middle East faded a bit.

U.S. stocks fell back as a whole last week, with notable weakness in large cap growth offset by lesser declines in value and minimal change in small cap stocks. By sector, communications gained over a percent (mostly Alphabet/Google) to lead, while technology (Apple, Microsoft, and NVIDIA), utilities, and energy all lost several percent for the week. Real estate also fell by -3% along with higher long-term interest rates. On Thursday, markets took a downward turn after quarterly reports from Microsoft and Meta especially. Despite decent Q3 numbers, this appeared to be due to continued concern over high levels of AI infrastructure spending, and an uncertain timeline for this capex to translate into sales. Obviously, the higher the price ratios rise for such companies, the greater the market sensitivity to potential disappointment. Sentiment on Friday improved dramatically as a weak jobs report (albeit weather- and strike-driven) provided more hope again for keeping Fed rate cuts on track. With such a close national election race, removing the uncertainty will be a key theme of the coming week.

Economic Update 10-28-2024

• Economic data for the week included a decline in overall durable goods, mixed results in housing sales, as well as higher continuing jobless claims, due to a variety of weather and labor issues.  
• Equities declined globally, with higher interest rates and less certainty about central bank rate easing looking forward. Bonds fell back along with rising yields at the longer end of the curve. Commodities gained, largely due to energy, despite a stronger dollar.

U.S. stocks lost ground for the first time in six weeks, as higher interest rates associated with an assumed more drawn-out Fed rate cut cycle and perhaps higher future deficits post-election weighed on sentiment. By sector, consumer discretionary experienced a percent gain (led by a 20%+ return for Tesla, upon better than expected earnings and vehicle sales projections) and a small gain for technology, while negativity was most pronounced in materials, industrials, and health care. Large cap fared better than small cap. Real estate fell about -2% upon the rise in yields.

Economic Update 10-21-2024

• Economic data for the week was mixed, with positive reports for retail sales, while industrial production and housing starts declined. Jobless claims were decent, considering the negative weather- and labor-related impacts.
• Equities were mixed globally, with gains in the U.S. on net, and declines abroad, tied with a pullback in China’s recent rally. Bonds were flattish with little change in the yield curve. Commodities were down for the most part, with lower perceived geopolitical risks pulling down oil prices.

U.S. stocks saw continued gains last week, led by continued reinvigorated strength in small cap stocks over large. By sector, utilities, financials, and materials led the way with gains of roughly 2% or more. Energy was the laggard, falling by nearly -3% upon continued weakness in oil prices. Real estate also gained several percent.

Economic Update 10-14-2024

• Economic data for the week included consumer inflation coming in better on the headline side, but remaining sticky on the core side, while producer prices continued to show moderation. Jobless claims rose following consecutive hurricanes impacting the Southeastern U.S.
• Equities were mixed globally last week, with gains in the developed world and declines in emerging markets, due to varying economic results and central bank policy expectations. Bonds pulled back as yields moved higher along with sticky inflation. Commodities were mixed, with oil prices ticking a bit higher but industrial metals down.

U.S. stocks reached new record highs again last week. Sector results were mixed, with technology and industrials leading with gains of over 2% for the week, followed by financials, while utilities pulled back by over -2%. Real estate saw a small decline, as interest rates ticked upward a bit. In the closely-monitored tech and communications segment, strength in NVIDIA offset a decline in Alphabet/Google, as it appears the Department of Justice is considering a legal push for a breakup of the company. Tesla also fell back by double digits as investors appeared less impressed with the lack of detail concerning their new ‘robotaxi’ products.

Economic Update 10-07-2024

• Economic data for the week included ISM manufacturing data coming in unchanged, and still contractionary, while ISM services improved further into expansion. Friday’s employment situation report came in far better than expected, in higher nonfarm payrolls and a drop in the unemployment rate.
• Equities were mixed globally with gains in the U.S. and China, while other developed and emerging countries saw declines. Bonds fell back generally with higher interest rates. Commodities rose with a sharp gain in crude oil along with Middle East concerns.

U.S. stocks were mixed early in the week, with decent economic data coupled with Fed Chair Powell again reiterating in a high-profile speech that “more cuts” would be coming, but also downplaying the speed, as the FOMC is “not a committee that feels like it’s in a hurry to cut rates quickly.” This appears to have disappointed markets a bit. The East and Gulf Coast port strike also raised the likelihood of a negative impact on near-term GDP by at least a few tenths of a percent if it went on for a few weeks (although a temporary agreement was reached by Thurs.). By week’s end, the stronger-than-expected nonfarm payrolls report again pointed to a possible slower Fed rate cutting path, which was felt in interest rates more than it was in equities (with the offsetting story of still-strong economic growth a likely positive).

Economic Update 9-30-2024

• Economic data for the week included the final edition of Q2 GDP growth coming in unrevised at a continued strong pace. PCE inflation was slightly improved, while durable goods orders were unchanged. House prices continued to see gains, while new home sales fell back for the month.
• Equities were generally positive globally, led by foreign markets, and particularly Chinese stocks as government stimulus measures were announced. Bonds were flattish in the U.S., but positive abroad due to a weaker U.S. dollar. Commodities were mixed, with gains in metals especially from the Chinese stimulus, while energy prices fell with higher expected supplies.

U.S. stocks gained last week on the heels of benign U.S. economic data and announced stimulus measures in China. Results by sector were mixed, with the strongest gains in materials (with items such as copper and certain chemicals seen as a direct beneficiary of greater Chinese activity), consumer discretionary, and communications, while health care, energy, and financials experienced small declines. Real estate was also down slightly, with interest rates little changed.

Economic Update 9-23-2024

• Economic data for the week included the FOMC cutting interest rates more than many expected, beginning a new policy phase of easing. Retail sales and industrial production rose, exceeding expectations. Housing starts increased, recovering from a hurricane the prior month, while existing home sales declined. The index of leading economic indicators continued its negative path, albeit to a lesser degree than the month before.
• Equities gained globally in response to the Fed’s rate cut and turn to easing policy. Bonds were mixed, however, with falling short yields offset by longer yields, although emerging market bonds fared well. Commodities gained as crude oil and natural gas inventories fell.

U.S. stock market response to the Fed’s rate cut was mixed on Wed., although Thurs. featured a good deal more positivity, with gains of nearly 2%. By sector, energy, financials, and communications saw the biggest gains, close to 4%, while defensive consumer staples and health care lagged with declines. Real estate also fell back a percent as longer-term interest rates rose and anticipated rate cuts came to fruition, leaving fewer positive expectations.

At the September meeting, the U.S. Federal Reserve Open Market Committee decided to reduce the Fed funds rate by -0.50% to a new range of 4.75-5.00%. There was one voter dissent, where a member opted for only a quarter-percent cut.

The formal statement was updated to reflect the new easing bias, noting that inflation has simply “made further progress...but remains somewhat elevated.” Also noted was that the committee’s labor and inflation goals “are roughly in balance.” Later in the statement, labor was again mentioned in a reminder of the Fed’s dual mandate in “supporting maximum employment” in addition to its inflation objective. The new quarterly Summary of Economic Projections (SEP) put the Fed funds rate expectation at 4.4% for year-end 2024 (down from 5.1% in June), 3.4% for 2025, 2.9% for 2026 and 2027, while the anticipated long-term rate ticked up a tenth to 2.9%.

There hasn’t been this much mystery shrouding a policy change in some time, and surprise announcements have not been common in recent years. Before the meeting, CME Fed funds futures markets evolved toward the chances of a -0.50% cut at as high as 60%, and a -0.25% move at around 40%, after wavering between the two for much of the past month (wisdom of futures markets is correct again). Chances remain high for cuts in November and December, with odds pointing to a year-end rate of around 4.25%. The furthest-out estimate in Dec. 2025 shows the highest probabilities for Fed funds at around 3.00%.

Economic Update 9-16-2024

• Economic data for the week included producer price inflation continuing to decelerate, as did consumer price inflation to some degree, although rising shelter costs remain a persistent influence. Consumer sentiment came in a bit better than expected, although expectations for future inflation were mixed.
• Stocks saw gains globally as markets digested central bank policy easing and the close U.S. Presidential election. Bonds fared positively across the board as yields fell. Commodities rose across the board, due to the strength in metals.

U.S. stocks saw gains last week, to reverse the negativity of the prior week. They also shook off mixed results mid-week that included the relief of decelerating CPI but perhaps not enough to fully satisfy the Fed, in addition to perhaps the strong debate performance by Vice President Harris, which Wall Street viewed as raising the odds of higher taxes and regulation, and a less corporate-friendly environment generally. The magnitude of the upcoming Federal Reserve rate cut (as in -0.25% or -0.50%) remained an open question by week’s end.

Economic Update 9-09-2024

• On the Labor Day-shortened week, economic data included ISM manufacturing and services gaining some ground, a continued reduction in job openings, and an employment situation report coming in largely as expected (and an improvement on the prior month’s disappointment).
• Equities lost ground globally for the week with concerns over the broader economy and labor markets in the U.S. Though, bonds fared well as yields fell sharply. Commodities fell back led by weaker oil prices due to future demand worries.

U.S. stocks suffered the worst weekly declines in over a year and a half, but representing the third meaningful drawdown this year. By sector, only consumer staples saw a small gain, while all others ended in the negative, led by technology (-7%), energy (-6%), and materials. The sizable technology drop was fueled by NVIDIA down -14%, following rumors about it being subject to a Justice Department antitrust probe, resulting in the largest dollar market cap loss on record. (Moderate changes in trillion-dollar market cap sizes have tended to be record setting.) Real estate also gained slightly, along with lower yields.

Economic Update 9-03-2024

• Economic data for the week included U.S. GDP growth for Q2 revised upward, along with higher durable goods orders and consumer confidence, in addition to gains in personal income and spending. Home prices remain strong on a trailing annual basis, although the pace has decelerated.
• Equities were mixed, with value outperforming growth sectors and foreign stocks. Bonds generally fell back as yields ticked up a bit across the curve. Commodities were mixed, with energy and metals prices down for the week on demand concerns.

U.S. stocks were mixed on the lower volume last week of summer, with ‘value’ seeing gains of over a percent, while ‘growth’ fell back. Sector results reflected this, with financials gaining 3% on the week, followed by industrials and materials; on the other hand, technology stocks fell back by over -1% (largely the impact of NVIDIA), along with lesser declines in consumer discretionary (Tesla and Target). Real estate saw minor gains, despite higher yields during the week.

Economic Update 8-26-2024

• Economic data for the week included stronger new and existing home sales reports, along with mixed PMI manufacturing and services sentiment, and a weaker month from the index of leading economic indicators.
• Equities gained globally last week, along with further hints of easing central bank policy. Bonds similarly gained as yields fell. Commodities were mixed, with stronger metals and weaker crude oil prices.

U.S. stocks ended positively for the week, despite low summer trading volumes, with decent economic results and the dovish tone of the FOMC July minutes. Gains culminated on Fri. by the further dovish tone of Fed Chair Powell’s Jackson Hole speech. Nearly every sector saw gains last week, led by materials, consumer discretionary (largely helped by Target and TJX), and industrials, while energy experienced a minor decline. Real estate also rose nearly 4% on the sentiment surrounding lower rates, which has been one of the primary drivers of that sector in the near-term. Small cap reacted especially strongly to the hints of upcoming rate cuts, as would be expected. Focus remains on the consumer, with added sensitivity to signs of potential weakness in corporate earnings commentary, as well as the mix of product type and purchaser demographic/income level.

Economic Update 8-19-2024

• Economic data for the week included both producer and consumer price indexes coming in lower, showing continued deceleration toward more normal levels. Retail sales and consumer sentiment improved, while industrial production and housing starts declined, with the latter likely driven by weather-related events.
• Equities gained ground globally, following a week of high volatility, with both the U.S. and foreign markets seeing similar gains. Bonds also fared well as yields fell in response to decelerating inflation. Commodities were mixed with metals up and energy down, despite higher Middle East tensions.

U.S. stocks reversed course from the prior week’s volatility, earning the best weekly returns in a year. By sector, growth leadership resumed with technology gaining nearly 8% (led by a 20% rise in NVIDIA), followed by consumer discretionary up over 5% (with Starbucks gaining sharply after appointing a new CEO from Chipotle). Laggards included communications, as well as energy and utilities, all of which were up only about a percent. Real estate was only slightly positive. Interestingly, declines in Alphabet/Google have been somewhat muted considering the U.S. Justice Department’s interest in potentially breaking up the firm due to what are claimed to be monopolistic practices.

Economic Update 8-12-2024

• In a week of limited economic data, reports included improvement in ISM services indexes, while jobless claims fell back from recent higher levels.
• Equities continued to experience the highest levels of volatility in months, with a net result of little change for the week in the U.S. and small gains in foreign markets. Bonds fell back generally, along with a backup in yields. Commodities saw gains, led by crude oil as demand worries faded a bit.

U.S. stocks experienced one of the more interesting weeks in some time—in fact, it featured the single worst and single best days since 2022. By sector, industrials and energy led with gains of over a percent each, while laggards included materials and consumer discretionary (Tesla and McDonald’s), each down over -1%. Real estate fell back only slightly, despite the sharp rise in yields, which also negatively affected small caps broadly.

Economic Update 8-05-2024

• Economic data for the week included the U.S. Federal Reserve keeping key interest rates steady, as expected. On the positive side, pending home sales rose, while negative data included ISM manufacturing, construction spending, and jobless claims. The monthly employment situation report for July disappointed, with fewer jobs and a higher unemployment rate.
• Equities fell back globally, with economic and policy concerns outweighing decent U.S. corporate earnings reports. Bonds fared quite well as interest rates plummeted across the curve. Commodities lost ground for the most part, due to demand concerns, with the exception of precious metals.

In what some have called one of the more important weeks of the year thus far, the U.S stock market did not disappoint in terms of volatility. While a Wed. rally came along with Fed hints toward a September start to interest rate cuts, by Thu., weaker economic growth, including manufacturing ISM and jobless claims, as well as the employment report on Fri., which reversed that exuberance in a downward direction, raising some concerns the Fed has waited too long to ease and/or that their language about a Sept. cut wasn’t quite convincing enough. Non-committal language has often been the hallmark of the Fed, as it’s been more focused on keeping itself flexible in response to changing conditions; however, weakening in a few areas certainly does raise the odds for a Sep. cut, as well as potentially for cuts in Nov. and Dec. as well, as needed. In fact, after the weak July jobs report, odds have risen for a -0.50% cut by Sep. (possibly assuming a cut made in-between meetings, which the Fed can do, at the risk of raising market anxiety even further), to a year-end rate of 4.00-4.25% (implying five cuts in total). In addition, some polls have shown a slide in former President Trump’s odds versus Vice President Harris, which has caused an unwind for stocks tied to benefits of a pro-business and looser regulatory regime.

By sector, only the traditional defensives of utilities, health care, and consumer staples ended the week with gains, while declines were focused in technology and energy, each down -4%. Real estate also fared positively, up over 4%, as interest rates declined. Value lagged slightly less than growth, while small cap fell back relative to large cap.

Economic Update 6-03-2024

• For the short holiday week, economic data included U.S. GDP growth being downgraded a few tenths, continued improvement in lower PCE inflation, higher home prices, and improved consumer sentiment.
• Equities were mixed globally, with developed markets down a bit on net, while emerging markets fell further. Bonds were little changed domestically, while foreign markets saw mixed results. Commodities fell back across a variety of sectors.

U.S. stocks fell on the shortened week, but ended May with solid gains to offset weakness from the prior month. By sector, energy and utilities led the way with gains upward of 2%, while technology fell back by over -2% (as a positive week for some stocks was offset by weakness in Salesforce, Adobe, and Microsoft). Real estate also gained, with Friday’s ‘less bad’ inflation news providing a boost.