Monthly Market Commentary

Throughout 2024, market sentiment and expectations have shifted from optimistic to concerned, with different segments rallying and then falling back while interest rates rose then fell quickly to then grind higher into and through the election. 

In November, investors experienced more of the same.  The markets started the month awaiting a pivotal election expected to shape the economy and markets for the next four years.  The immediate response to the results was a big rally in equities before reality set in and the impact of policy changes were evaluated more closely.  Some of the key benefactors of the expected policy changes have been small and mid-cap stocks (Russell 2000 up 11% and Russell Mid Cap up 9%) while non-US stocks, both developed and developing, declined significantly on concerns about new tariffs and pro-US policies impacting global trade.  Bond yields shifted throughout the month, jumping up immediately after the election on expectations of higher fiscal spending and tax cuts and then steadily declining into the month end, with short-term rates ending about where they started while long-term rate fell modestly. 

Entering the last month of 2024, there are some positive and not so positive data points to look at as an investor.  The S&P is up 28% YTD and the Russell 2000 is up 22% while non-US stocks are up only 6% and the bond market is up a paltry 3%.  Inflation has come down but not to the Fed’s comfort level and the unemployment rate is low but job growth is slowing.

Here are a few observations about what occurred across the public markets during the month:

Overall

• The S&P 500 Index was up 5.9% in November, up 28.1% YTD, and up 33.9% on the trailing one-year. 
• The MSCI ACWI ex USA MSCI Index was down -0.9% in November, up 7.6% YTD, and up 13.0% on the trailing one-year.
• The Bloomberg Aggregate Bond Index was up 1.1% in November, up 2.9% YTD, and 6.9% on the trailing one-year.
  
  

Domestic Equity

• Equity markets surged after the election, driven by expectations of lower personal and corporate taxes, a less restrictive regulatory environment, and greater support for domestic businesses.        
• Large cap growth and value stocks saw similar good returns while small and mid-cap growth stocks outperformed due to a select group of stocks that had big rallies as well as expectations for broader support for smaller, domestic focused businesses.  

 

International and Global Equities

• Foreign developed markets greatly underperformed US stocks due to the threat of increased tariffs impacting trade with the US along with a stronger US Dollar following the Trump victory.
• Emerging markets posted negative returns in November with multiple markets declining as the impact of potentially higher tariffs on trade with the US weighed on export dependent stocks and sectors.  

 

Fixed Income Markets

• Bonds posted positive returns as political uncertainties eased and the Fed pushed through another 25bps rate cut. Interest rates fell late in the month, causing the yield curve to be less inverted.
  
  

Specialty Markets

• REITs benefitted from falling interest rates. Commodities delivered a small positive return as geopolitical events and currency fluctuations impacted prices.
  
  

US Equity Sectors

• Performance was positive across all sectors. Consumer Discretionary and Financials were the best performing sectors of the group.

 

Dear Valued Investor,

Solid gains for stocks gave investors a November to remember. In fact, the S&P 500’s more than 5% advance marked its best month of 2024. Several factors played into the stock market’s continued move higher. The U.S. economy continued its steady run of solid growth. The Federal Reserve (Fed) cut interest rates as expected, providing some reassurance about the outlook for inflation. Third quarter earnings season was solid, revealing that corporate America still has double-digit earnings power in its bag of tricks. The combination of election clarity and prospects for deregulation and lower taxes from the incoming administration also played a role. Market leadership was also encouraging, as small caps and economically sensitive consumer discretionary and financial sectors led, which may bode well for further gains.

More good news for markets came over the Thanksgiving holiday weekend with promising data for the all-important start to the holiday shopping season. According to Mastercard’s Spending Pulse (which measures both online and in-store retail sales), sales rose a solid 3.4% on Black Friday, compared to 2023 levels, driven by a more than 14% increase in online sales. Consumers broadly are still enjoying plenty of spending power thanks to rising wages, low unemployment, and high stock prices – especially those who refinanced mortgages during the pandemic. Add in the recent dip in gas prices and it’s likely the shopping momentum will continue through year end.

Looking ahead, more gains could be coming. History reveals that stocks tend to produce above-average gains in December and rise more often than they fall — even after strong gains the month prior. In 2025, continued economic and earnings growth, lower inflation, and potentially more Fed rate cuts position the stock market for further gains. If artificial intelligence investments boost productivity, as many expect, a good year could get even better.

Of course, there are risks. The last bit of excess inflation has been tough to wring out, so markets may need to further reduce expectations for rate cuts. Deficit spending could put upward pressure on long-term interest rates. Tariffs will likely trim company profit margins and be met with additional retaliation. Geopolitical threats cannot be dismissed even after a temporary cease-fire between Hezbollah and Israel and talks of a territory-for-peace deal in Ukraine. Finally, some measures of investor sentiment are getting stretched, so fully allocated investors may want to wait for a dip before adding to equity positions.

All of us at Connor & Gallagher OneSource wish you a wonderful holiday season.

Sincerely,