Daily market snapshot

Happy Thanksgiving!

Wednesday, 11/27/2024 p.m.

• Stocks finish lower: Equity markets closed lower Wednesday with the S&P 500 snapping a streak of seven consecutive sessions with positive returns.* Real estate and health care were the top performing sectors while technology was a laggard following mixed earnings results from Dell Technologies after the market close yesterday.* Overseas, European markets traded lower while Asian markets were mixed overnight with Japan's Nikkei logging a modest decline while equity markets in China were higher.* On the economic front, the second preliminary estimate for third-quarter GDP growth was in-line with expectations and unchanged from the initial estimate of 2.8%.* Inflation data was in focus today as well with personal consumption expenditures (PCE) inflation in-line with expectations for both core and headline PCE. Bond yields finished lower with the 10-year Treasury yield falling to 4.25% and the 2-year Treasury yield ticking down to 4.23%.*
• Inflation data in-line with expectations : Inflation data was back in focus today with the release of October personal consumption expenditures (PCE) inflation. Headline PCE rose by 0.2% in October and 2.3% over the past 12-months, both of which were in-line with expectations. Core PCE rose by 0.3% in October and 2.8% over the past 12-months, also both in-line with expectations. Markets are pricing in a 66% probability of another 0.25% rate cut at the Fed's December 18 meeting.*** In our view, another 0.25% cut in December is likely, however with the U.S. economy on strong footing and the potential for inflationary fiscal policy down the road, the Fed will likely take a more gradual approach to rate cuts in 2025.
• Strong returns across multiple asset classes provide investors reasons to be thankful: With the Thanksgiving Holiday approaching, investors with well-diversified portfolio's have plenty to be thankful for. The past 12-months have seen above-average returns across a variety of different asset classes and regions, building on strong performance in 2023. U.S. large-cap stocks have gained over 33% in the past twelve months, well above the 20-year annualized growth rate of just over 10%.** U.S. small-cap and mid-cap stocks have seen strong returns as well, each higher by over 34%.** Despite underperformance more recently, international stocks have managed healthy returns with international developed large-cap stocks higher by roughly 11% and emerging-market stocks up roughly 14%.* Additionally, U.S. investment-grade bonds have posted a gain over 7% in the past 12-months despite a spike in yields more recently. While it will be difficult to replicate the strong performance of the past 12-months, we see broad leadership as a theme that continues to play out in the months ahead, emphasizing the importance of maintaining a well-diversified portfolio aligned to your long-term goals.

Brock Weimer, CFA
Associate Analyst

^{*FactSet **Morningstar Direct. Total Return in USD. Returns through 11/26/2024. ***CME FedWatch Tool}

• Stocks rise as tariff rhetoric heats up – Major equity markets closed higher on Tuesday, with the S&P 500 and Dow Jones Industrial Average reaching record highs. Social media posts from President-elect Trump call for 25% tariffs on goods from Canada and Mexico, as well as an additional 10% tariff on products from China. The tariffs on the Canada and Mexico are modestly higher than the 10%-20% previously proposed, while the China tariff is lower than up to 60% mentioned during the campaign. Raising tariffs on Canada and Mexico would likely face legal hurdles as trade with these countries is subject to the U.S.-Mexico-Canada Agreement (USMCA), which was negotiated during Trump's first term and entered into in 2020. Tariffs on goods from China may be more likely to be imposed as they benefit from bi-partisan support in Congress. In global markets, Europe was down as markets assessed the global implications of potentially higher U.S. tariffs. The U.S. dollar is advancing versus major currencies. In the commodity space, WTI oil traded lower as Israel and Lebanon reportedly agreed to a ceasefire*.
• Markets focus on key inflation readings this week – The personal consumption expenditure (PCE) index for October will be released on Wednesday, with forecasts calling for inflation to rise to 2.3% annualized, up from 2.1% the prior month*. This estimate is in line with the Federal Reserve's (Fed) full-year projection for 2024. The Fed's preferred inflation measure, core PCE, which excludes food and energy prices, is expected to tick up to 2.8%. We believe these expectations reflect inflation that is gradually cooling, though the path will likely be bumpy along the way. With the target range for the fed funds rate currently 4.5%-4.75%, monetary policy is restrictive, as a neutral rate is generally considered to be about 1% above inflation. We expect the Fed to continue cutting interest rates, though the pace is likely to slow. Bond markets are currently pricing in expectations for 0.75% of Fed rate cuts over the next 12 months**.
• Rising short-term yields briefly invert yield curve – Short-term Treasury yields have risen in recent months as markets have scaled back Fed interest-rate-cut expectations. The 2-year Treasury yield has risen about 75 basis points (0.75%) in recent months, briefly surpassing 10-year yields on Monday, known as an inverted yield curve. The yield curve is now slightly positive, with the 10-year Treasury yield at 4.30% and 2-year yield at 4.25%. In our view, this bond market signal does not reflect recession concerns but rather is the result of adjusting expectations to a slower pace and shallower path of Fed rate cuts.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch}

• Stocks start the week higher – Major equity markets closed higher on Monday, with the Dow Jones Industrial Average and Russell 2000 small-cap index reaching record highs. The positive market reception to the nomination of hedge fund manager Scott Bessent to be the next U.S. Treasury secretary appears to be supporting strong investor sentiment. Sector performance was broadly higher, as real estate and consumer discretionary stocks led to the upside. In global markets, Asia was mostly higher to start a busy week of economic data, as investors await China industrial output, India third-quarter GDP, and inflation from Australia and Japan. Bond yields declined, with the 10-year Treasury yield near 4.26%. The yield curve is inverted again, with 2-year yields rising above 10-year yields, as markets have scaled back Federal Reserve (Fed) interest-rate-cut expectations. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil and gold traded lower.
• Markets focus on key inflation readings this week – The personal consumption expenditure (PCE) index for October will be released on Wednesday, with forecasts calling for inflation to rise to 2.3% annualized, up from 2.1% the prior month*. This estimate is in line with the Fed's full-year projection for 2024. The Fed's preferred inflation measure, core PCE, which excludes food and energy prices, is expected to tick up to 2.8%. We believe these expectations reflect inflation that is gradually cooling, though the path will likely be bumpy along the way. We expect the Fed to continue cutting interest rates, though the pace is likely to slow. Bond markets are currently pricing in expectations for 0.75% of Fed rate cuts over the next 12 months**.
• Corporate earnings season winding down – With 95% of S&P 500 companies reporting, third-quarter earnings are on pace for about 5.9% growth year-over-year. Results have been strong relative to expectations, with 75% of companies beating analyst estimates*. Earnings growth has been broad, with seven of the 11 sectors delivering higher earnings*. The sectors forecast to have lower earnings – energy, industrials, materials and utilities – represent about 17% of the market capitalization of the S&P 500*. Broadening earnings have contributed to a rotation in market leadership. Over the past six months, the consumer discretionary, financials, real estate, industrials and utilities sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch}

• Stocks finish higher, capping a strong week: U.S. equity markets finished higher on Friday, finishing off a strong week that saw the S&P 500 gain 1.7%.* Today's leadership favored value-oriented sectors, with consumer staples, financials and industrials among the top performers.* Small-cap stocks outperformed as well, with the Russell 2000 Index gaining over 1.5% today and more than 4% on the week.* Overseas, European markets traded higher while Asian markets were mixed overnight, with Japan's Nikkei finishing higher but China stocks sharply lower.* Bond yields were little changed, with the 10-year Treasury yield closing around the 4.4% mark, while the 2-year Treasury yield ticked up to 4.38%.* On the economic front, the November preliminary estimate for the U.S. composite PMI rose to a 31-month high, signaling ongoing economic momentum.*
• Focus shifts back to inflation: Inflation, and its implication on future monetary policy, will be back in focus next week with the release of personal consumption expenditures (PCE) inflation on Wednesday. Market expectations are calling for headline PCE to rise by 2.3% year-over-year, up from the prior months gain of 2.1%.* Core PCE is expected to tick higher as well, with expectations for a 2.8% annual gain, up from 2.7% in the prior month.* Consumer price index (CPI) inflation, which was released earlier this month, suggested the path to the Fed's 2% target could be bumpy. Core CPI rose by 3.3% annually, while the three-month annualized rate of core CPI rose to 3.6%.* Current market expectations are calling for a 60% chance of another 0.25% Fed rate cut at its December 18 meeting.** We'd align with markets that another quarter-point cut at the December meeting is a probable outcome. However, with inflation proving persistent in recent months, the U.S. economy on strong footing and the potential for inflationary fiscal policy over the coming year, we believe the Fed could take a more cautious approach to rate cuts in 2025.
• PMI data point to weak activity abroad: Preliminary estimates for the November S&P Global Purchasing Manager Index (PMI) point to continued weakness in economic activity abroad. The eurozone composite PMI fell to 48.1 (a reading below 50 signals contraction), the lowest reading since January.* A large driver behind eurozone weakness has been sluggish activity from the region's largest economy, Germany. The German composite PMI fell to 47.3 in today's reading and has been in contraction since June.* Weak manufacturing activity has been a drag on Germany and the broader eurozone. In fact, both the German and eurozone manufacturing PMIs has been in contraction since June 2022.* Eurozone producer price inflation surged in 2022 due to the war between Russia and Ukraine, weighing on profitability for manufacturers. While prices have since started to moderate, headline eurozone PPI is over 30% higher today than at the start of 2021.* Looking around the horn, activity didn't fare much better in the U.K. with the composite PMI falling to 49.9, the first contraction since October 2023, while Japan's manufacturing PMI fell to 49, the fifth consecutive month of contraction.* Contrarily, the U.S. composite PMI rose to 55.3, a 31-month high, driven by strength in the services sector.* We continue to favor the relative economic momentum of the U.S. relative to international regions. As part of our opportunistic asset-allocation guidance, we recommend investors consider underweighting international developed stocks and reallocate toward U.S. large- and mid-cap stocks.

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet **CME FedWatch Tool}