Weekly Market Report: November 8th, 2024

Last week markets took in a relatively light economic calendar but a full slate of corporate earnings reports, an important FOMC meeting, and the results of highly anticipated elections in the U.S. All four aspects, particularly the latter, contributed to a strong week for equity markets and a volatile week for bond markets. The S&P 500 (+4.7%) notched another new record high, breaking the 6,000 mark for the first time in the process. International developed and emerging equity markets both ended the week relatively flat thanks in large part to a strengthening USD. Bond yields surged mid-week but proceeded to unwind and close the week as 10yr yields closed down 7bps on the week.

Market Anecdotes

  • Equity markets enjoyed an unwind of election hedges, VIX/MOVE retreats, favorable seasonality, stock buyback momentum, and a healthy dose of election related FOMO/animal spirits. Bond and currency markets endured a mid-week scare but ultimately settled relatively flat.
  • Immediate market reaction to the RRR complexion in DC was a selloff in the bond market accompanied by a surge in the USD and small caps due to higher probabilities of tax cuts and tariffs. As the week drew to a close, equity markets retained gains and bond markets ended flat.
  • Longer term, the degree of policy pragmatism and economic implications will dictate market outcomes. Positioning for short term equity market strength and bond market weakness with a close eye on yield impact on equity markets and policy development feels right.
  • Last week’s FOMC meeting was lacking in suspense as markets received precisely what they expected, a 25- bps rate cut. However, the backdrop moved further away from one warranting the aggressive rate cuts priced in at the beginning of the year given labor and inflation trends.
  • Expectations for Fed policy as expressed in futures and prevailing interest rates have clearly signaled risks of a dovish mistake with rate cut expectations now less than 4 cuts in the coming year, the 3m/10yr slope moving toward uninverting, and long-term bond yields rising sharply.
  • Monetary policy in the U.S. has shifted focus from taming inflation to working toward an orderly cooling of the tight labor market and contained long-term inflation expectations have likely bolstered Fed confidence in doing so.
  • An FT article made note that the strong U.S. economy backed by the consumer carries record high income gaps where the top 20% account for 40% of all spending and the bottom 40% account for 20% of all spending.
  • We’re now at the 91% mark of S&P 500 3Q earnings reports with blended top and bottom lines of 5.5% and 5.3%, respectively, in what can still be categorized as mixed outcomes due in large part to beat margins of only 4.5% coming in lower than usual.
  • An article in the FT highlighted rising risks of re-defaulting instances in CRE following the unprecedented ‘extend and pretend’ trend of loan modifications by U.S. banks in response to commercial real estate stress.
  • Chinese stimulus details announced last week were centered on a $1.4t local government bond swap, a larger than anticipated figure but still centered on stabilization rather than stimulus.
  • Money market/SOFR rates surged at the end of Q3, drawing renewed attention to the FOMC quantitative tightening initiative which has reduced the size of the Fed balance sheet by a historic $2t since June 2022.

Economic Release Highlights

  • The October ISM Services Index improved from 54.9 to 56.0, beating the spot forecast (53.5) and coming in above the consensus range of 53.0 to 55.8.
  • The JPM Global Composite PMI readings improved in November with Services (52.9 to 53.1) and Manufacturing (48.8 to 49.4) taking the Composite reading to 52.3.
  • The UofM Consumer Sentiment Index for November came in above consensus (73.0 vs 70.8) and 1yr inflation expectations declined from 2.7% to 2.6%.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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