December 9, 2024

“In investing, what is comfortable is rarely profitable.”

 Robert Arnott

The S&P 500 soared 5.9% in November with 8 of our 17 featured factor indices outperforming the S&P 500, led by Pure Growth. But first here are the numbers from last week. The S&P 500 finished the week up .83%, The Dow Jones Industrial Average lagged off .63%, The big winner was the Nasdaq which Added 3.14%. Internationally, the FTSE 100 was positive .26% and the MSCI-EAFE added slightly up.,12%. The 2-Year finished with a yield of 4.098% and the 10-Year paid 4.149%.

In November, new winners and losers emerged, while some factors kept their leadership positions. Notable representatives of the latter camp were Pure Growth and Momentum, the latter being the best-performing large-cap factor both YTD and over the past 12 months. Momentum’s outperformance has not been limited to large caps; the factor is indeed alive and well in the mid- and small-cap universe too, as the Momentum indices for those size segments strongly outperformed their respective benchmarks. In fact, the S&P MidCap 400 Momentum exhibited the highest absolute and relative performance of the three, rising 52.0% YTD and outperforming the capitalization-weighted S&P 400 by 29.3%. Tech stocks are suddenly back in favor. After a period of weakness, the Magnificent 7 stocks and the rest of the technology complex have rallied of late.

President elect Trump rounded out his cabinet and the impact is being felt across the globe. Many movers and shakers both domestically and internationally are getting in line to curry favor with the new administration. What is remarkable is how quickly the narratives in those industries and countries has changed. It promises to be a much different first 100-days than in recent history. Add to the fact that this assassination, which is just another bullet point of lawlessness, is disturbing and dangerous, but murdering the president of the largest health care company in broad daylight in New York seems to indicate that dissatisfaction with the status quo has become more emboldened. Further international news with the collapse of the Syrian government sets a new dynamic in motion in the middle east.

That aside, there was some good news last week which contributed to the Nasdaq finding its legs and indicating we may have our Santa Claus rally to the year end. Lower interest rates, declining inflation, and higher corporate profits could power the U.S. stock market rally through the year-end. The stock market got the jobs number it wanted last week, with 227,000 non-farm payrolls added to the U.S. economy in November. That’s good enough for economic growth, but not so good that it could force the Federal Reserve to pause its rate-cutting plans.

Traders ended the day pricing in an 85% change of a quarter-point rate cut at the Fed’s meeting that concludes on Dec. 18. Yesterday, those odds were 71%. The stock market has been acting jubilantly over the past month, with the S&P 500 up about 6% since the U.S. election and all three major U.S. stock indexes trading near all-time highs. Throughout the optimism, Wall Street’s so-called “fear gauge” has been trading near lows for the year.

On the inflation/interest rates Front, the conventional wisdom among economists and traders is that the Federal Reserve is going to cut its benchmark interest rate by another quarter of a percentage point on Dec. 18, and then pause at its first meeting in 2025. Barrons Megan Leonhardt reported early last week that news that could provide a further bump to markets, Federal Reserve Governor Christopher Waller suggested another rate cut was still in the works. Waller said Monday that, based on the current economic data available, he’s leaning toward voting for another rate cut at the Dec. 17-18 meeting of the Federal Open Market Committee. Looking ahead, Waller expects rate cuts to continue over the next year until rates approach a more neutral rate, though policymakers will likely skip cuts at some meetings next year if officials’ forecasts hold up.

“Recent data have raised the possibility that progress on inflation may be stalling at a level meaningfully above 2%. This risk has raised concerns that the FOMC should consider holding the policy rate constant at our upcoming meeting to collect more information about the future path of inflation and the economy. Based on the economic data in hand today and forecasts that show that inflation will continue on its downward path to 2% over the medium term, at present I lean toward supporting a cut to the policy rate at our December meeting.”

Even though inflation hasn’t exactly continued its smooth cooling trajectory, Waller said he’s not going to overreact. Moreover, there is strong evidence that monetary policy is still restrictive, he said. So another cut this month would only mean that the Fed isn’t “pressing on the brake pedal” quite as hard as it had when the central bank kept rates higher.

“I feel like an MMA fighter who keeps getting inflation in a choke hold, waiting for it to tap out yet it keeps slipping out of my grasp at the last minute,” Waller said. “But let me assure you that submission is inevitable—inflation isn’t getting out of the octagon.”

With US job increases, more quitting their job for greener pasture speaks well for an improving economy, and consumer confidence rebounding since the election fuels feeling in the consumer’s mind that things will get better. So far, this Christmas season indicates consumer spending headed in a robust direction. Further Stock buybacks hit a record so obviously companies see good things ahead for their profitability.

And the housing market? Soaring home prices and dramatic increases in mortgage loan interest rates have squeezed U.S. families seeking to move or to buy a first home. Might the environment for home buyers improve during 2025?

Aarthi Swaminathan covers residential real estate, which includes writing the Big Move column. This week she answered two big questions for next year:

Housing Market Crash? Frustrated home shoppers might be wishing for the housing market to crash so they can get a foot in the door. But a housing crash is highly unlikely, and home prices are only expected to go up further from the record highs they hit this year, experts told MarketWatch.

The silver lining for buyers is that their incomes will grow faster than home prices as compared to prior years, Ralph McLaughlin, a senior economist at Realtor.com, said at a press conference.

Will mortgage rates fall? The 30-year mortgage rate is back at 7%. When will rates fall — and by how much? MarketWatch spoke to several economists about their 2025 forecasts. The consensus was that they expect the rate on the 30-year fixed mortgage to drop to a 6.2% level by the end of 2025, but to not go below that.

As we close out 2024 in this last month of the year, things look good and a general optimism is returning to America. So, we will stay the course and see what the future administration will bring.

Mike