Stocks Deliver Best Month of the Year

Quick Take: Post-election optimism led stocks to hit record highs to close November, while Treasury bond yields ultimately settled lower (prices up) after some volatility. [1],[2]

Stocks surged in November, posting their largest monthly gains of the year, as the removal of election uncertainty set off a powerful market rally.[3] The euphoria sent the S&P 500 up 5.7% in November.[4] Investors are betting on the incoming administration fulfilling campaign promises of tax cuts and deregulation to boost corporate profits.[5]

Some $141 billion has flowed into US equities over the past four weeks – the heaviest monthly inflow on record, according to EPFR Global data.[6] The S&P 500 has now surged by 26% year to date, with 2024’s gains rivaling the best years of this century so far.[7]

Source: https://www.bloomberg.com/news/articles/2024-11-28/asian-stocks-to-slip-as-treasury-trading-resumes-markets-wrap

Meanwhile, bonds had endured a difficult stretch since mid-September, with yields rising (prices falling) on consistently strong economic data reports.[8] While stocks surged initially after the election on optimism over a business-friendly environment, bond yields took fright at the potential impact of inflation and on explaining the deficit.[9]

The bond selloff reversed course after 10-year Treasury yields topped 4.5%, in mid-November, and buyers pounced on the attractive yield.[10] The announcement that Wall Street veteran Scott Bessent would be nominated as Treasury Secretary further appealed to bond markets.[11] Investors expect Bessent to offer a capable and qualified presence to the incoming cabinet.[12] In an interview with the Wall Street Journal, he said he would prioritize delivering on tax cut pledges while cutting spending and maintaining the dollar as the world’s reserve currency.[13]  These goals could positively support ongoing economic growth.

Toward the end of November, bonds rallied to hit one-month lows.[14]

Confident Consumers Boost Retail Sales

The drumbeat of a solid economy continues. Expectations that the economy can continue growing into the fourth quarter were reinforced by a strong November consumer confidence report.[15] The confidence index landed near the top of the range of the past two years.[16]

If you were wondering why Black Friday sales started in October and Christmas decorations went up right after Halloween, a shorter holiday season could be to blame (at least partially). Retailers have one less week between Thanksgiving and Christmas to sell, compared to last year.[17] The sales “creep” also aims to loop in more customers before their budgets run out.

Shoppers are mostly likely still weary of pandemic-boosted price levels. Consumers remain value-focused as they pull the trigger during a lengthening shopping season.[18]

Expectations for sales during the holiday season had previously cooled after mixed earnings calls from the likes of Best Buy and Target. [19] However, consumer willingness to spend showed up in the highly anticipated retail data from Black Friday. Final Black Friday sales numbers, excluding autos, were up 3.4% over last year, with in-store sales rising modestly. The highlight was online Black Friday sales, which jumped 14.6%.[20]

The Prospect of a Pause

Source: https://www.reuters.com/markets/us/us-consumer-spending-increases-solidly-october-inflation-stays-elevated-2024-11-27/

Although consumer spending continues to contribute early momentum in the fourth quarter, progress in ironing out inflation recently seems to have stalled.[21] The slow march back to a 2% target, combined with proposed tariffs on imports, could limit the central bank’s latitude to cut rates much further next year.[22]

Minutes from the November the Federal Reserve (Fed) policy meeting showed officials divided over the extent of further cuts.[23]  Policymakers felt that risks of a more pronounced slowdown in the labor market or the economy had diminished since the meeting in September.[24] The Fed is still expected to deliver a third rate cut when it meets in December, but with sticky core services inflation, the Fed may opt to pause rate cuts early as it reassesses new policy and data.[25]

US Dominance Built on Earnings

Source: https://www.reuters.com/world/us/trumps-return-could-extend-us-stocks-dominance-over-global-rivals-2024-11-22/

Last month, we discussed the outperformance of US stocks vs global peers. The post-election surge in US stocks has seen the domestic equity market extend its lead over global peers.[26] For example, the emergence of multi-trillion dollar companies like Apple and Nvidia has taken total US market capitalization to $63 trillion, four times the size of all of Europe’s stock exchanges combined, whereas ten years ago, the US was no more than double that of Europe.[27]

Source: https://www.blackrock.com/corporate/literature/market-commentary/weekly-investment-commentary-en-us-20241202-uneven-earnings-call-for-granularity.pdf

The outperformance stems from earnings growth, especially of the biggest (mostly tech) companies known as the “Magnificent 7.” Its trailing earnings growth, which refers to the earnings increase over the last 12 months, is truly magnificent at 45% compared with 1% in the rest of the world and 4% for the rest of US companies, excluding the “Mag 7”.

Estimates for future earnings growth even out a bit, but many still expect the biggest 7 to lead the markets again in 2025.

Looking Ahead

The final month of the year is often a strong one for stocks seasonally, although the S&P is already on track to deliver consecutive gains of over 20% two years in a row – for the first time since 1999.[28]  Long-time readers will know that we don’t jump into the fray of fortune-telling price levels, and this time is no different.

Throughout investment cycles, a steady hand guided by a strategic long-term investment plan lays the strongest foundation for long-term wealth building. We thoughtfully balance risk and opportunity to weather shifting markets, while staying laser-focused on your financial goals.

As we move into the new year, we encourage you to reflect on your financial outlook and goals and let us know about any changes in circumstances or objectives. Please reach out to schedule your year-end meeting so we can discuss any questions and updates. Wishing you a magical holiday season and a bright new year ahead!

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