December Economic Update
Market Summary
The major US stock market indices rebounded last month to post modest gains across most sectors while largely shaking off concerns regarding inflation, escalation in Ukraine, and tariffs proposed by president-elect Trump. The broad-based S&P 500 rose 5.73% to wrap up the month, while the Nasdaq 100 index gained 5.23% and the Dow Jones outperforming at 7.54%. (1)
Economic Releases
The most notable economic data point released last month was the Consumer Price Index (CPI). The year-over-year headline inflation number rose to 2.6% from a previous level of 2.3% which marked the first increase in this number since March. However, the Core CPI number, which excludes volatile prices for food and energy, remained the same as the previous report at 3.3%. (2)
Another inflation metric, the Producer Price Index (PPI), also rose higher which is continuing an upward trend that has developed throughout the year. Core PPI bottomed last January at a rate of 1.7% year-over-year change and has been on a steady upward trend since that time. Last month, the index posted a 3.1% annual rate which is the highest since November 2023. (3)
Employment numbers rebounded for the month of November after the surprisingly low figures posted a month ago. Nonfarm Payrolls bounced back to the normal range with the Bureau of Labor Statistics reporting the US added 227,000 jobs. Key sectors contributing to growth included healthcare, leisure, and government. Retail trade, however, shed jobs, continuing a trend of challenges in brick-and-mortar retail. The unemployment rate remained steady at 4.2%. The previous report was also revised higher for the month of October from 12,000 to 36,000 jobs created. (4)
The housing market continues to be tight with existing home sales declining slightly due to elevated mortgage rates and affordability challenges. Inventory remains low as many homeowners are postponing potentially moving out of their existing home due to a reluctance to surrender their low mortgage interest rate with a new loan at much higher borrowing costs. Although the Federal Reserve has begun to lower interest rates, there has been little change to the 30-year mortgage rate which as of December 4th was 6.69%. (5)
Looking Forward…
As we approach the close of another year, we look forward to what 2025 may bring. While the markets have primarily been by a handful of large technology companies surrounding artificial intelligence advances, the valuations of these companies, and the markets as a whole, will begin to be scrutinized more heavily. While we do believe AI is a large driving force of growth, there are very few companies that are actually profiting off of the technology at this time.
Valuations of the markets can be measured by the price-to-earnings (P/E) ratio with a higher number representing more expensive valuations. The forward P/E ratio for the S&P 500 is currently 22.3 which is well above the 10-year average of 18.1. It would not be surprising if we see a routine market pullback or larger correction heading into the first quarter of 2025 to reset these lofty valuations. (6)
Monthly Financial Tip:
Given the desire to travel and live well, the first few years of retirement may be expensive ones. Before and during those years, be mindful of economic and market cycles. They could affect your portfolio, and, by extension, your plans.
Citations:
1. Charles Schwab, November 29, 2024
2. Investing.com, November 13, 2024
3. Investing.com, November 14, 2024
4. Investing.com, December 06, 2024
5. Investing.com, December 04, 2024
6. Factset.com, December 06, 2024
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
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