Monthly Market and Economic Update - November 2024

CURRENT MARKET AND ECONOMIC CONDITIONS     

• In November, the S&P 500 Index was up 5.87%, while the Bloomberg Barclays US Aggregate Bond Index was up 1.06% and the Bloomberg Barclays Municipal Bond Index was up 1.73%.
• The stock and bond market rose post-election as the markets find positive traction from rising earnings, lower interest rates, and a potentially changing regulatory environment. 
• The Federal Reserve is on track to lower the Fed Funds rate by a quarter point in December.

BOND MARKET     

• The recent jobs report shows the economy continues to grow and supports the normalization of employment, interest rates, and inflation. As Federal Reserve Chairman Jerome Powell stated in his recent testimony to Congress: “Recent indicators suggest that economic activity has continued to expand at a solid pace. GDP rose at an annual rate of 2.8 percent in the third quarter, about the same pace as in the second quarter. Growth of consumer spending has remained resilient, and investment in equipment and intangibles has strengthened. In contrast, activity in the housing sector has been weak. Overall, improving supply conditions have supported the impressive performance of the U.S. economy over the past year.”
• Projections released by the Fed showed the central bank would reduce the Fed Funds rate by one full point reduction before the end of 2025. The Futures market is projecting one more rate cut in 2024 and projects the Fed Funds rate to be under 3.7% by the end of 2025. Federal Reserve Chairman Jerome Powell stated in his congressional testimony that the election results have no impact on their short-term views.  The Fed does not know what – or when – policy changes will be implemented under the new administration and has no plans to speculate. When policy changes arrive, the Fed will model for projected impacts, but they are just one piece in a dynamic economy. In the meantime, the Fed plans to move carefully and patiently.
• Bonds have been behaving much better this year for investors. As interest rates fall, bond values rise. Yields had fallen at least a full percentage point across all maturities of the yield curve. Even with a slight uptick in rates, investors are enjoying much higher current yields than they have in several years. The combination of higher current interest rates and rising values due to falling interest rates may result in a rather ordinary but potentially positive remainder of the year for bonds. Given the volatility in bond values over the past few years, the ordinary is likely very welcome. 

STOCK MARKET

• After a post-election lift, the market has continued to find positive traction from rising earnings, lower interest rates and a potentially changing regulatory environment. This post-election lift is topping off the best year of the past five. Since 2000, when the market was up at least 20%, the market returns in December were positive. 
• The stock market appears overvalued but that may be reflecting the euphoria at the top end of the market, which may experience a valuation correction going into the new year. The remainder of the market - value stocks, small stocks, and most definitely international stocks - are significantly undervalued relative to US large cap growth stocks. Rather than a significant across the board decline, we may see a rotation toward stocks that have been generally ignored by the market in recent years. A broadening of the market’s strength across different segments of the market would be a healthier outcome and reflect the general strength of the economy.

PORTFOLIO MANAGEMENT

• The allocation for each investor should be diversified between growth and safety based on their own tolerance for risk in the short run and their desire for growth in their investments in the long run. Determining the appropriate asset allocation and risk-reward trade-off is the most important decision for investors.  Once determined, staying invested during periods of uncertainty and rebalancing back to the selected risk profile can help investors achieve their long-term goals.