Market Commentary

November was a strong month of market performance. Both the S&P 500 and the DOW finished at new all-time highs. The broadening out of the market became increasingly evident when viewing the sector rotation in trading. Money moved during the month into Consumer Discretionary (Nov +14.8%), Financials (Nov +12.5%) and Industrials (Nov +8.6%). The Healthcare (Nov +0.2%) and Materials (Nov +1.6%) sectors lagged. All eleven sectors were up for November. Despite the rotation and increased investment activity, there is still a record $7 trillion sitting in Money Market funds.

S&P 500:                            Nov +5.73%                        YTD +26.47%
DOW:                                  Nov +7.54%                       YTD +19.16%
NASDAQ:                           Nov +6.21%                       YTD +28.02%
Russell 2000:                    Nov +10.26%                     YTD +20.11%

Sector Performance YTD:

Communication Services +34.2%
Consumer Discretionary +26.2%
Consumer Staples +18.2%
Energy +13.1%
Financials +36.0%
Healthcare +7.8%
Industrials +25.8%
Technology +34.2%
Materials +10.2%
Real Estate +12.0%
Utilities +30.1%

Current U.S. Treasury Yields:

6 Month Bill             4.37%
2 Year Note             4.16%
5 Year Note             4.09%
10 Year Note           4.20%
30 Year Note           4.35%

The Fed and the Economy:

China’s economic expansion continues to miss the target. 2024 looks to come in at 4.8% and 2025 is projected lower at 4.5%. Earlier in November, China announced a five-year plan totaling $1.4 trillion to prop up their economy and to mitigate the growing debt issue.

The UK’s GDP retreated in Q3, which was expected. However, the data came in weaker than forecasted. Q4 looks to continue the trend as manufacturing has been declining since August. The most recent rate cut (with more to come) and no additional taxes has lifted confidence to a fragile UK consumer.

Eurozone growth is expected to slow in the short-term after moderate growth for the first half of 2024. ECB President Christine Lagarde expects improvement but is concerned with geopolitical risks associated with global supply chains and the EU’s dependence of open trade.  A 25bp rate cut (4^th in 2024) is expected next week.

Germany is in recession after a long cyclical downturn. Economic growth is forecast at an anemic 0.1% for 2025. The unemployment rate is set to rise to 6.2% for 2024 and the collapse of the country’s ruling coalition creates a leadership void. France is second to Germany in dysfunction. The fear is lower growth, deteriorating credit worthiness and no agreed upon budget for 2025.

Q3 GDP for the U.S. economy increased 2.8%, in line with estimates. Job growth was relatively negligible at 12,000, and the unemployment rate remained unchanged at 4.1%. CPI and PPI both rose 0.2% in October. PCE increased to 2.3% for the 12-month period and was up 0.2% in October.

Fed Chair Powell and the FOMC meet December 17-18 and will decide to continue with a rate cut or pause. Powell continues to stay data dependent, and the street is split on cut/no cut. We feel a case can be made to pause as the economy continues to show strength, the country is near full employment and inflation has creeped up in the last two months. The talk on tariffs have been given excess attention.

Looking Ahead:

The exceptional portfolio returns posted in 2023 and now followed into December 2024 have developed skepticism for additional forward progress. The U.S. remains ahead of all other countries economically and in financial returns. 75% of S&P500 companies beat on earnings expectations. As well, growth was up 9% year-over-year and overall sales were up 5.7% in Q3.

We feel the market will continue to move higher into year-end and through 2025. Supportive rate cuts in 2025, a market that has broadened out and solid company forward guidance across industries/sectors will continue the march higher. The market has been catching up to higher PE multiples. There will be volatility and geopolitical risk as always. We remain cautiously optimistic.