Weekly Market Report: November 16th, 2024
Markets last week took in a relatively light economic calendar, the last leg of 3Q earnings reports, and refocused on inflation/Fed/interest rate dynamics. A new batch of inflation data and post-election policy speculation translated to some consolidation of recent equity market gains and a renewed drift higher in interest rates on the week. Most U.S. equity indices notched fresh record highs on Monday but went on to close down for the week. The S&P 500 was down 2% and small caps gave back 4% while developed (-2.5%) and emerging (-3.8%) both fell slightly more thanks in part to a 1.6% rally in the USD. Interest rates moved higher across the curve with 10yr yields closing up 13 bps to close at 4.43% while commodity markets lost 2% where we saw WTI oil drop nearly 5% to $67.02.
Market Anecdotes
- Post-election markets are taking shape as they await details on immigration policy, tax cuts, deregulation priorities, Fed policy, and trade tariffs with the expectation that many campaign proposals will likely be moderated as they become actual policy proposals.
- Bloomberg noted that European stocks are on pace for their worst performance relative to U.S. stocks since 1995 with growth, currency, and policy dynamics all significant factors.
- The CPI report last week renewed attention to Fed policy. We’ve seen 2yr inflation breakevens, which bottomed out the week before the first rate cut, increase 1.1% over the last 45 days thanks to resilient growth and the “reflationary cocktail” of tax cuts and tariffs.
- Fed speaking engagements last week served to further temper market expectations for rate cuts given the stubborn inflation backdrop of the past few months and renewed policy uncertainty following the Republican sweep in DC.
- With 3Q earnings season set to end this week, we are sitting on 8.6% bottom line growth (11% ex-energy) for full CY 2024 forecast of $242 and CY 2025 of $270-$275, a bit of a tightrope with forward multiples tracking at 22x and most other valuation metrics pretty stretched.
- A cut in the corporate tax rate from 21% to 15% is highly probable and effectively falls right to the bottom line. While markets have certainly been pricing this in, a note from Goldman might explain why small caps were the biggest benefactor of the policy change.
- An FT article highlighted new laws in China designed to retaliate against countries waging trade wars by blacklisting foreign companies from Chinese markets, employing sanctions, and cutting off supply chains relied upon by American companies.
Economic Release Highlights
- CPI rose in line with expectations across the board with YoY headline and core at 2.6% and 3.3% with MoM at 0.2% and 0.3%.
- Retails Sales in October grew 0.4%, slightly ahead of the 0.3% forecast while the Ex-Autos (0.1% vs 0.3%) and Ex-Autos & Gas (0.1% vs 0.4%) readings both missed.
- Third quarter European GDP grew 0.4% QoQ, 0.9% YoY while the U.K. reported 0.1% QoQ and 1% YoY growth.
- The October NFIB Small Business Optimism Index edged up to 93.7 from 91.5.
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