Higher for Longer; Again!?
U.S. Stock Market Performance
Record-Breaking Performance:
- The S&P 500 rose 5.7% for the month, reaching new all-time highs [1][5].
- The Dow Jones Industrial Average surged 7.5%, marking its best month of 2024[1][5].
- The Nasdaq Composite gained 6.21%, its strongest month since May [3].
Market Drivers:
- Post-election optimism: Trump's win reduced uncertainty and boosted investor confidence [3].
- Economic growth: The U.S. economy expanded at a 2.8% annualized rate in Q3[3].
- Rate cut expectations: Slowing growth increased the likelihood of Fed rate cuts [3].
- Seasonal strength: November's traditional market strength contributed to positive sentiment [3].
Sector Performance:
- Semiconductor stocks saw gains, with Lam Research and Nvidia rising over 3% and 2% respectively [2].
- Retail stocks like Macy's and Best Buy gained around 2% ahead of the holiday shopping season [1].
- Tesla shares rose 38% for the month, benefiting from Elon Musk's support of Trump [1].
Other Notable Developments:
- The Russell 2000, focusing on smaller companies, outperformed with a 10.8% monthly gain [2].
- Bitcoin approached $100,000, briefly rising above $98,000 before settling around $97,300[1].
- The 10-year Treasury yield fell to 4.19% by the end of the month [1].
Analysts express optimism for December, citing the continuation of favorable conditions and the potential for a seasonal year-end boost[2]. However, investors will be closely watching the November jobs report, due on Friday, for insights into the Federal Reserve's potential actions regarding interest rates[3].
Citations:
[1] https://www.cbsnews.com/news/stock-market-today-dow-s-p-500-november-best-month-2024/
[2] https://www.cnbc.com/2024/11/29/stock-market-today-live-updates.html
[4] https://www.cnbc.com/2024/12/01/stock-market-today-live-updates.html
[5] https://www.investopedia.com/dow-jones-today-11292024-8753278
Bond Market Performance
Treasury Yields:
- The 10-year U.S. Treasury yield decreased by 4 basis points to 4.40% [1].
- The 2-year yield increased by 7 basis points to 4.38% [1].
- Earlier in the month, the 10-year yield had approached 4.50% before retreating [3].
Corporate Bonds:
- Investment grade corporates gained 0.14% for the week, outperforming similar-duration Treasuries by 2 basis points [1].
- High yield corporates advanced 0.28%, outpacing similar-duration Treasuries by 25 basis points [1].
- Lower-rated corporates, particularly CCC-rated high yield bonds, performed strongly with a 0.40% gain [1].
Municipal Bonds:
- Municipal bond yields were essentially unchanged [1].
- New issue supply was $9.0 billion, with fund inflows of $1.3 billion [1].
Emerging Markets:
- Emerging markets debt advanced 0.29%, beating similar-duration Treasuries by 19 basis points [1].
Analysts and market participants noted several key points for the future:
- The market was pricing in only three more rate cuts over the next 12 months, down from over nine in September [5].
- The Federal Reserve's task was becoming more complex due to slowing inflation progress and economic resilience [5].
- Credit spreads remained tight, with investment-grade spreads at historically low levels [5].
Overall, November 2024 saw the bond market navigating a complex environment of changing economic indicators, central bank policies, and investor sentiment.
Citations:
[1] https://www.nuveen.com/en-us/insights/investment-outlook/fixed-income-weekly-commentary
[2] https://www.parkavenuesecurities.com/monthly-market-commentary-november-2024
[4] https://funds.dws.com/en-ch/inform/markets/market-outlook/market-and-macro/
[5] https://aptuscapitaladvisors.com/around-the-bond-market-november-2024/
Commentary:
Last month, we wrote about the ICE BofAML MOVE Index and its extraordinary climb prior to the election. To recap, in the month leading up to the election, the MOVE Index had advanced nearly 50% while the 10-yr treasury went from its low of 3.62% in mid-September to 4.38% at the end of October. There were many ways you could interpret this action; our interpretation was that potential economic policies placed by either candidate would ultimately lead to inflation lingering longer than initially expected.
As a refresher, the MOVE index is a 30-day market implied measure of bond market volatility. Like VIX measures volatility for equities, the MOVE index measures volatility for bonds. A high MOVE index value is interpreted to mean an increase in Treasury market volatility and potential uncertainty while a low MOVE index indicates low risk and high certainty.
On November 4th, 2024, the MOVE hit a 13-month high of 136 as the bond market feared the uncertainty of the upcoming election and fed meeting. By November 12th, the Index had collapsed down to 99.85, marking its largest 5-day collapse in history. During this time, the 10 Year Treasury Rate rose 12 basis points to 4.45%. Again, implied volatility is a measure of the magnitude of anticipated change in either direction. Having the MOVE index fall by as much as it did while the 10-yr Treasury remained somewhat stable suggests that the rise in yields that we saw in October may be here to stay.
With Republican control of Congress and a conservative Supreme Court majority, the Trump administration has the tools needed to execute its agenda for the next two years. If Trump follows through on his plans for tariffs and mass deportation, we could potentially find ourselves in an environment of higher inflation and lower output. There are also proposed large tax cuts, which may lead to larger deficits and ultimately inflationary effects.
These are just a few examples of proposed policies that could lead to higher inflation. There are plenty of proposed implementations that may lead to disinflation, for instance, the proposal to lower prices by increasing energy production. It is also important to note that policy is not the only thing that affects the rate of inflation. The reality is that we do not know for certain what policies will be implemented and what the outcome on the rate of inflation and economic growth will be under the Trump administration. As policies get implemented and economic data changes, we will continue to do what we have always done, which is adapt and implement strategies to best preserve and grow our client’s capital.
Conclusion:
How does all of this affect our client portfolios? While we remain cautious of potential headwinds, now is not the time to be doing nothing in the markets, especially in areas of the market where we see potential growth. We are overweight in asset classes that will benefit from a higher inflationary environment such as Commodities, Energy, and Gold.
We are cognizant of the implications Scott Bessant’s recent nomination for Treasury Secretary may have on the economy. One of the key bullish drivers we have for gold is an increase in the US deficit and spending levels. With Bessent being known as a fiscal hawk, we have decided to take some profits on gold and reallocate to an asset that would perform well if the US deficits decreased, the US Dollar.
We remain in a globally diversified position as we believe it helps reduce overall investment risk and remain invested in high quality, short-duration bonds. As always, we will continue to monitor market conditions and are prepared to shift our allocations as we see changes.
Model Performance Update
Our Moderate Model Portfolio returned 2.1% during the month of November and finished the month up 11.5% Year to Date (see charts below).
Changes to the model portfolio in September
- Replace XLP (Consumer Staples) with QQQ (Technology)
- Trimmed AAAU (Gold) in half and replaced with UUP (US Dollar)
November 2024 performance with benchmark
YTD Performance with Benchmark
If you were to have any questions regarding the above please reach out to us to set up a one to one meeting to review your situation.
Sincerely,
Bryant Andrus, MSF, CFP®
President
SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com
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SBC Investment Management’s Monthly and Quarterly Market Summary and Outlook is intended to communicate current economic and capital market information along with the informed perspectives of our investment professionals. All expressions of opinion are subject to change. Past performance may not be indicative of future results. There is no assurance that any of the trends discussed will continue, or that any of the forecasts will occur.
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