Daily market snapshot

• Stocks little changed following inflation data – Equity markets closed near the flatline Wednesday following consumer price inflation data that was in line with expectations. Most sectors of the S&P 500 finished the day flat to higher, with energy, real estate and consumer discretionary outperforming.* Information technology and communication services sectors were among the laggards, which led to underperformance in the tech-heavy Nasdaq Index.* After a strong start to the day, the rally in U.S. small-cap stocks fizzled out, with the Russell 2000 Index closing lower by about 0.6%.* Overseas, Asian markets were mostly lower overnight, while European markets closed lower as well. Bond yields finished the day mixed, with the 2-year U.S. Treasury yield falling to 4.27% while the 10-year U.S. Treasury yield ticked higher to 4.45%.*
• Inflation data in line with expectations – Headline consumer price index (CPI) inflation rose by 0.2% in October and 2.6% year-over-year, both in line with expectations.* Core CPI, which excludes food and energy, rose by 0.3% in October and 3.3% year-over-year, also both in line with expectations.* The 0.3% monthly change in core CPI is the third consecutive month with a 0.3% gain and pushes the three-month annualized change in core CPI to 3.6%, up from a low of 1.6% in July.* While we expect that inflation will continue to trend lower over the coming months, recent data shows that the path lower may not be in a straight line. Market expectations are calling for an 80% probability of a Fed rate cut at the December meeting, which we'd view as a reasonable expectation.** However, strong economic growth suggests that there is no need for urgency from the Fed to accelerate the pace of rate cuts. Bond markets have reflected this view and are now pricing in only three 0.25% Fed rate cuts from now until the end of 2025.**
• Focus turns to the consumer - With consumer price inflation in the rearview, market focus will turn to consumer-spending trends, with retail sales for October out on Friday.* Consensus expectations are for retail sales to rise by a healthy 0.3% month-over-month, a modest downtick from the September reading of 0.4%.* Control-group retail sales - which excludes more volatile components such as spending at auto dealers, gas stations and building-material dealers – is also expected to rise by 0.3% in October.* Despite higher borrowing costs compared with recent history, consumer spending has proved resilient and has been the driving force behind strong U.S. economic growth in recent quarters. In our view, easing but healthy labor-market conditions and strong household balance sheets create a supportive environment for consumers, which should help extend the economic expansion.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg} 

• Stocks finish lower – U.S. equity markets finished modestly lower on Tuesday, with the S&P 500 snapping a streak of five consecutive days of positive returns.* From a leadership standpoint, the technology and communication services sectors outperformed, while most other sectors finished lower.* Small-cap stocks underperformed today as well, with the Russell 2000 shedding over 1.5%, reflecting a risk-off tone in equity markets.* Bond yields closed sharply higher, with the 10-year U.S. Treasury yield rising 0.13 percentage points to 4.43%, while the 2-year Treasury yield climbed to 4.34%.* On the economic front, the NFIB Small Business Index rose to 93.7 in October, below the 30-year average of over 97 but tied with the July reading for its highest since 2022.* In the commodity space, oil prices were little changed, finishing around $68 per barrel, while gold prices fell by roughly 0.4%.*
• Key inflation data on the horizon – Inflation will be the main focus for markets this week, with October consumer price index (CPI) inflation out tomorrow and the producer price index (PPI) out on Thursday. Economists expect headline CPI to rise by 2.6% on an annual basis, while headline PPI is expected to rise by 2.3%, both higher than the prior month.* Core CPI, which excludes the food and energy components, is expected to hold steady at 3.3% annually.* Markets are currently pricing in a roughly 65% probability of a 0.25% Fed rate cut at its December 18 meeting.** We'd align with consensus that another 0.25% rate cut from the Fed in December is likely. However, given the U.S. economy remains on strong footing, a hotter-than-expected CPI reading tomorrow could lead to a pause at the December meeting.
• Bond yields resume upward trend: After taking a breather in the prior week, bond yields rose again today, with the 10-year Treasury yield closing just above the 4.4% mark.* Since the Fed first cut interest rates on September 18, the 10-year Treasury yield has risen by roughly 0.7%.* In response, U.S. investment-grade bonds have struggled, declining by nearly 3% since September 18.* In our view, the rise in Treasury yields has been attributable to a combination of resilient U.S. economic growth and higher inflation expectations, as measured by the five-year breakeven inflation rate.* This has led to a subsequent reduction in expectations for Fed interest-rate cuts over the coming year, with markets now expecting the Fed's target rate to end 2025 at roughly 3.9% compared with expectations of 2.9% in early October.** With central banks easing policy, our view is that there will be limited upward pressure on intermediate and longer-term yields. We'd recommend investors consider reducing overweight allocations to cash and short-term bonds and add to intermediate- and longer-term bonds.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg 
U.S. investment-grade bonds measured by Bloomberg U.S. Aggregate Bond Index} 

• Stocks close higher: Major equity markets added to strong gains from last week, as the S&P 500, Nasdaq and Dow Jones Industrial Average reached new record highs. Sector performance was mixed, with consumer discretionary and financial stocks leading markets higher. Bond markets were closed in observance of Veterans Day. In global markets, China was lower, as new stimulus measures fell short of market expectations*, while Europe was up. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil was down, as the China stimulus package raised demand concerns*.
• Markets focus on key inflation readings this week: The consumer price index (CPI) for October will be released on Wednesday, with forecasts calling for inflation to rise to 2.6% annualized, up from 2.4% the prior month*. The modest expected increase is due to lower inflation readings from a year ago rolling out of the year-over-year figure. Importantly, CPI is expected to rise 0.2% month-over-month, which translates to about 2.4% inflation annualized. We believe these expectations reflect inflation that is gradually cooling, though the path will likely be bumpy along the way, likely allowing the Federal Reserve to continue cutting interest rates.
• Corporate earnings season winding down: With 91% of companies reporting, third quarter earnings are on pace for about 5.2% growth year-over-year. Results have been strong relative to expectations, with 74% of companies beating analyst estimates*. Earnings growth has been broad, with eight of the 11 sectors delivering higher earnings*. The three sectors forecast to have lower earnings – energy, industrials and materials – represent less than 15% 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 and real estate sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet}

Friday, 11/08/2024 p.m.

• Stocks close higher, capping a strong week: Major U.S. equity markets closed higher on Friday, finishing off a strong week. The S&P 500 gained over 4.5% this week, the best weekly gain since November 2023.* At a sector level, leadership was broad-based, with most sectors of the S&P 500 closing higher, led by utilities and real estate.* Overseas, European markets closed lower, while Asian markets were mostly lower overnight. Bond yields were mixed, with the 2-year Treasury yield ticking up to 4.26%, while the 10-year Treasury yield was down roughly 0.04 percentage points to 4.3%.* On the economic front, the University of Michigan consumer sentiment survey showed consumer sentiment improved to its highest since April.* In commodity markets, oil prices finished lower by over 2%, while gold fell by less than 0.5%.*
• Focus shifts to inflation in the week ahead: With the FOMC meeting concluding yesterday and resulting in a 0.25% interest-rate cut, market focus will shift to inflation - and its implication on future monetary-policy decisions - in the week ahead. Consumer price index (CPI) inflation for October will be released on Wednesday, and expectations are calling for headline CPI to rise by 2.5% on an annual basis and 0.2% month-over-month.* Core CPI is expected to rise by 3.3% on an annual basis and 0.3% month-over-month.* Inflation has cooled meaningfully from this time last year but still remains above the Fed's 2% target. In yesterday's meeting, Fed Chair Jerome Powell acknowledged that the FOMC believes risks to its goals of achieving maximum employment and inflation near 2% are roughly in balance, and he reiterated that future decisions will be driven by incoming data. In our view, the Fed is likely to cut rates again at its December meeting by 0.25%. However, with the U.S. economy still on strong footing, a higher-than-expected inflation reading on Wednesday could lead the Fed to hold rates steady in December.
• China policymakers announce support for local government, but hopes for stimulus disappoint: Overnight, China policymakers approved a package worth roughly $1.4 trillion to help ease local government debt problems.* However, Friday's announcement did not reveal any additional fiscal stimulus measures to support sluggish consumption or the slumping property market. In response to the lack of direction on further stimulus, equity markets in China finished lower overnight.* We believe risks and opportunities are balanced in emerging-market equities, and we recommend neutral positioning as part of our opportunistic asset-allocation framework.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet}

Thursday, 11/07/2024 p.m.

• Stocks close higher on Fed Day – Major equity markets added to strong gains from earlier in the week, driving the S&P 500 and Nasdaq to new record highs. Sector performance was broad, as communication services and technology stocks led markets higher, reflecting a risk-on tone. Bond yields declined in a reversal of their trend higher over the past several weeks. In global markets, China was up on higher-than-expected exports for October*. Europe also traded higher, as the Bank of England cut interest rates by 0.25%. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil rose on concerns over the possibility of increased sanctions on Iran and Venezuela following the election*.
• Federal Reserve cuts policy rate for a second time – The Federal Reserve's Federal Open Market Committee (FOMC) cut its target range for the fed funds rate by 0.25% to 4.5% - 4.75%, as expected*. The FOMC's statement included a comment that the committee believes its goals of achieving maximum employment and inflation near 2% are roughly in balance**. Bond markets are pricing in expectations for another 0.75% of rate cuts through 2025, which would put the fed funds rate in the 3.75% - 4% range***. We expect the Fed to be able to continue cutting rates, though the pace may start to slow, as FOMC aims to achieve a soft landing for the economy. Lower interest rates typically reduce borrowing costs for businesses and consumers, which would be positive for economic growth and corporate profits.
• Jobless claims edge higher: Jobless claims rose to 221,000* this past week, as expected, up from 218,000 the prior week. This reading reflects a labor market that is gradually normalizing from a period of outsized strength, which we believe is supportive of continued growth and the "soft landing" narrative for the U.S. economy. A cooling labor market should also lead to slower wage gains ahead, which typically ease services inflation. Labor productivity increased 2.2% in the third quarter, up from 2.1% the prior quarter but below estimates calling for 2.3%. Rising productivity drives higher production relative to total hours worked, which is also positive for continued economic growth.

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet **CME FedWatch}