November Economic Update

Market Summary

Market volatility increased in October across both stock and bond sectors ahead of the US elections. This was followed by a relief stock rally post-election day while bonds continue to tread water with government deficit concerns. The impact of a strong dollar was evident, particularly in non-North American markets, where stock performance was notably weak when viewed in common currency terms while gold continues to trade around all-time highs. For the month of October, the major US market indices posted losses prior to the post-election rally. The S&P 500 pulled back -0.99%, the Nasdaq 100 index lost -0.85%, while the small-cap Russell 2000 retreated -1.49%. (1)

Inflation, Employment, and The Federal Reserve

Inflation metrics were mostly unchanged last month with both CPI and Core CPI year-over-year figures coming in at 2.4% and 3.3%, respectively. Meanwhile in the jobs market, the Bureau of Labor Statistics reported the US only added 12,000 jobs in October which was a fraction of the 106,000 that was expected and the lowest employment number since January of 2021. However, the unemployment rate remained relatively low at 4.1%, which is within the range that we have seen in recent months. (2,3)

Just one day removed from the election results, the Federal Reserve opted to lower the benchmark interest rate by a quarter of a percent, marking the second consecutive rate decrease. Their message was largely the same as the September meeting stating that inflation has moderated from its peak levels but remains above the Fed's goal. They did note recent softening of the labor market which will have to be closely monitored. If we continue to see deterioration within the job market, this would likely prompt the central bank to increase the pace at which they are decreasing interest rates – barring any spike with inflation. Fed Chair Jerome Powell highlighted that while labor market conditions are still tight, job growth has moderated. (4)

Looking Forward…

The post-election market reaction was mostly positive within the stock market and mostly negative in the bond market. While many this can likely be explained by the equity markets anticipating another round of corporate tax cuts, the first of which was implemented during President Trump’s first term in office. This would boost profits with the proposal of slashing the current 21% corporate tax rate down to 15%, which would be the sixth largest tax cut since 1940. (5)

A large corporate tax decrease would decrease the amount of tax revenue collected by our Federal Government which in turn would increase the budget deficit and force the US to once again increase the amount of outstanding national debt. For this reason, US Treasury Bonds fell and yields rose in anticipation of further debt increases and future excess Treasury Bond supply.

Among other impacts of the election for the financial markets would be the proposal by Trump to increase and implement new tariffs on foreign countries to export their goods to the United States. During his campaign, he pledged to implement 60% tariffs on all goods being imported from China in addition to a 10% tariff for all goods coming from all other countries around the world. While these numbers are likely just a starting point for congressional negotiations, any tariff increases or new tariffs implemented would threaten a second wave of high inflation due to increased prices for goods we import from other countries, as well as impact economic growth overseas.

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Monthly Financial Tip:

If your employer retirement plan has an auto-escalation option, take advantage of it. It can be a great way to put retirement savings on autopilot, especially for younger workers just starting to save for the future.

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Citations:

1. Charles Schwab, October 31, 2024

2. Investing.com, October 10, 2024

3. Investing.com, November 01, 2024

4. CBS News, November 05, 2024

5. CNN.com, November 08, 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.