Market Brief: December 2024

December 3, 2024

The Markets (as of market close November 29, 2024)

Stocks posted strong gains for November, which saw the S&P and the Dow have their best months of the year. The gains likely reflected investor optimism that a second Trump administration will favor businesses, with the hope that the President-elect will take a more moderate stance on trade tariffs. All 11 market sectors ended November higher, led by consumer discretionary and financials. Year to date, financials and information technology increased by more than 36%.

The latest data showed inflation has stubbornly resisted falling lower. For the 12 months ended in October, the Consumer Price Index (CPI) ticked up 0.2 percentage point to 2.6%, while the annual rate for the personal consumption expenditures (PCE) price index came in at 2.3%, 0.2 percentage point above the rate for the same period ended in September. Over the last three months, inflation has moved away from the Federal Reserve's target of 2%, making it less likely that December will see another cut in the fed funds rate.

Growth of the U.S. economy continued at a modest pace. The gross domestic product (GDP) met expectations after increasing 2.8% in the third quarter following a 3% increase in the second quarter. Personal consumption expenditures, the largest contributor to the calculation of GDP, rose 3.5%, with spending rising in durable and nondurable goods. Government expenditures rose 5%, imports grew more than exports, while gross domestic investment increased 1.1%.

Job growth rose by a mere 12,000 in October following a downward revision of 112,000 in the prior two months. The unemployment rate was unchanged at 4.1%, while the number of unemployed increased marginally. Wage growth rose 0.4% in October and 4% over the past 12 months. Hurricanes Milton and Helene may have skewed employment data. As a result, the Fed will likely wait until more information is available before assessing whether the labor sector has suddenly decelerated. The latest unemployment data may encourage tempering the pace of further rate cuts. While new weekly unemployment claims were unchanged from a year ago, total claims paid increased by over 90,000.

The S&P reported earnings growth of 5.8% in the third quarter. Roughly 75% of companies reported earnings per share above estimates, below the five-year average of 77% but equal to the 10-year average. Seven of the 11 sectors reported year-over-year growth, led by the communication services and healthcare sectors.

The real estate sector reversed course in October from September. Sales of existing homes increased in October after falling in September, while new-home sales, which increased in September, plunged in October. Mortgage rates have shown little downward movement, which has impacted sales. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.78% as of November 14. That's down from 6.79% one week ago and 7.44% one year ago.

Industrial production retracted for the second consecutive month in October. Manufacturing output and mining decreased while utilities increased. Purchasing managers reported manufacturing continued to slow in October as new orders decreased for the fourth month running. On the other hand, the services sector grew modestly higher in October.

 

Ten-year Treasury yields closed the month down by nearly 10 basis points as the probability of an interest rate cut in December waned. The two-year note closed November at 4.25%, down 3.0 basis points from a month earlier. The dollar strengthened, closing up nearly 2%. Gold prices declined in November after hitting a record high in October. Crude oil prices decreased by the end of the month as investors awaited further insights into production plans from OPEC+. The retail price of regular gasoline was $3.044 per gallon on November 25, $0.053 below the price a month earlier and $0.194 less than the price a year ago.

 

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking ahead

The Federal Reserve meets in December for the final time this year. Comments from Fed Chair Jerome Powell and other voting members seem to indicate that there is a slim chance that interest rates will be lowered in December. Recent data has shown relative strength in the economy, and the job market appears to be nearing full employment. However, inflationary pressures, while somewhat muted, continued to inch higher in October and November, which will heighten interest in the inflation indicators released in December.

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