November 4, 2024

“The ability to focus on important things is a defining characteristic of intelligence”

Robert J. Schiller

Well, here we go with possibly one of the most consequential elections in American history. But first the numbers. Last week saw a great deal of volatility but ended with the S&P 500 closed down1.8%, the Dow Jones Industrial Average finished off .50%, the Nasdaq lost 2.19%. Internationally, the FTSE 100 surrendered .87% and the MSCI-EAFE was off .06%. The 2-year treasury closed with a yield of 4.21%, and the 10-year paid 4.38%.

As U.S. equity markets brace themselves for employment numbers, the upcoming Presidential election, and a Fed rate decision, disappointing outlooks from Big Tech led to a retreat in mega-cap strength on the final trading day of October. The S&P 500® declined by 1% for the month, although large caps outpaced their small-cap peers. On the back of strong earnings and disinsertion of the yield curve, Financials led among large-cap sectors, up 3%, while Materials and Health Care lagged. Momentum and Enhanced Value were the sole positive performers among our reported factor indices. Overall, a very nervous market, even when better than expected earnings came in from some big tech leaders, stock prices still retreated. Stocks were tripped up by the latest set of results from Big Tech companies. Microsoft and Meta Platforms both posted impressive quarterly results last Wednesday night, but the companies also forecast continued increases in capital expenditures tied to the development of artificial intelligence. AI giveth and AI taketh away seems to be the order of the day.

What to expect as we go into the Holiday season? Despite a better-than-expected economic backdrop, consumers remain cautious. They are spending carefully, and more on services than goods. When they do spend on goods, there is a general aversion to big ticket items like appliances, TVs, and home furniture. Inflation remains one of the main factors driving this caution. Even though overall inflation is down, food prices are still high, which is putting a crimp on discretionary spending. This translates to consumer activity that is exceptionally concentrated on needs over wants, and around key discount periods like Black Friday and other holiday sales.

Another key economic factor affecting consumer spending is the labor market. As of now, the jobs picture remains stable, and real wages are slightly positive (but not enough to offset inflation). While not an immediate concern in the next few months, the potential for a significant uptick in unemployment will be on the radar for retail-sector investors in 2025.

Some good news, The U.S. consumer-confidence index surged to 108.7 in October from a revised 99.2 reading in the prior month, the Conference Board said last Tuesday. This is highest level of confidence since January. Also significant, Q3 GDP: Economy grows at 2.8% annual pace, led by strong consumer spending. The slowdown in inflation has come as a big relief to the Federal Reserve – not to mention millions of Americans frustrated by high prices. But the battle is not over just quite yet. The Fed’s preferred PCE index rose at a small 2.1% pace in the 12 months ended in September, just a hair above the central bank’s 2% target.

However, several key economic numbers were revealed last week, some good some bad causing volatility each trading day. The U.S. added only 12,000 jobs in October, far below expectations, marking the slowest month for hiring since December 2020. Economists had projected at least 100,000 jobs in the final report before Election Day, while September payroll gains were also revised down to 223,000 from 254,000. Last month’s hurricanes and labor strikes contributed to the weak jobs report, with Barrons noting it also reflects a labor market cooldown, “where growth is increasingly narrowly concentrated.” Overall, the unemployment rate remained steady at 4.1%, the lowest level heading into a presidential election since 2000.

Any more good news? According to Market Watch There has been a flurry of warnings that the S&P 500 has gotten too expensive, with a forward price-to-earnings ratio of 21.7, compared with a five-year average forward P/E of 18.4. But this week Joseph Adinolfi covered two potential catalysts for stocks: 1. Price momentum points to another year of stock market gains, according to an analysis by Leuthold Group. 2. Corporate executives expect an acceleration of profit growth starting in 2025, according to an analysis of their comments by analysts at Bank of America. 3. The “Need to Know” column last Tuesday included comments from BlackRock Chief Executive Larry Fink about an incredible amount of cash sitting on the sidelines and the prospect of corporate earnings “catching up” to P/E valuations.

Real Estate? Still no relief, the 30-year fell to close to 6% ahead of the rate cut, then bounced back up immediately afterward — and has been rising since. As of Oct. 29, the 30-year rate averaged at 7.08%, according to Mortgage News Daily, which surveys lenders on a daily basis.

Here some news you can use: The IRS has announced new 401(k) contribution limits for 2025. In its release last Friday, the agency increased the employee deferral limit to $23,500, up from $23,000 in 2024. The change applies to workplace plans, including 401(k)s, 403(b)s and most 457 plans, along with the federal Thrift Savings Plan.  The agency also boosted contributions for individual retirement accounts to $7,000 for 2024, up from $6,500. The IRS also unveiled 2025 catch-up contribution limits for savers age 50 and older, individual retirement account savings limits and higher income thresholds for Roth IRA contributions. Starting in 2025, the 401(k) catch-up contribution limit will remain at $7,500 for savers 50 and older. But investors aged 60 to 63 can instead save an extra $11,250, based on changes enacted via Secure 2.0. Both amounts are above the $23,500 deferral limit for 2025.

Don’t Forget……Daylight Saving Time ended Sunday at 2 a.m., clocks will roll back one hour, ending daylight saving time for 2024.

One final plea to all to make sure you vote, a number of you have asked my opinion on the election, at great risk, I am fairly confident in the common sense of most Americans, that and the much improved ground game of the Republicans and the unprecedented games played by the Democrats this cycle should result in the Republicans holding and probably gaining in the House, taking the Senate by a comfortable margin and the return of President Trump. But we shall see, but remember this is my opinion, just as good as yours. Tuesday we will all find out and adjust accordingly.

Mike