Weekly Market Update: November 18, 2024
The Federal Reserve cut the federal funds rate by a quarter point, to 4.50%-4.75%, at its November Federal Open Market Committee (FOMC) meeting. It marked the second reduction this year, and all indications are that the Fed will implement another 25-basis-point decrease at the final meeting of 2024, which commences on December 17th. Federal Reserve Chairman Jerome Powell said that the central bank will continue assessing data to determine the “pace and destination” of interest rates.
Recent data have given the Federal Reserve a green light to continue on its less-restrictive monetary policy course. The October Consumer Price Index (CPI) rose 0.2% month to month and was up 2.6% over the last year, showing a slight uptick in the headline figure. The core CPI, which excludes the more-volatile food and energy components, rose 0.3% and 3.3%, respectively, matching the consensus forecasts and the prior month’s readings. Meantime, the October jobs creation figure, at an estimated 12,000, was dismal, but that tally was likely negatively impacted by two hurricanes this fall and a few notable workers’ strikes. Investors also should note that initial weekly jobless claims remain at a low level. Still, the headline October jobs creation figure likely pushed any possibility of a Fed pause on the interest-rate front into 2025.
Third-quarter earnings season was another successful three months for Corporate America. As we went to press, profit growth for the S&P 500 companies was averaging around 5%. This would mark the fifth-straight quarter of year-over-year earnings growth for the S&P 500 companies and was likely needed to justify the Index’s elevated price-to-earnings multiple.
The stock market reacted positively to the recent U.S. election results, with President-elect Trump’s promise to maintain or lower the corporate tax rate and reduce Biden Administration regulations, particularly in the banking and energy sectors, seen as positives for corporations. We shall see how successful the incoming Trump Administration is in implementing these plans, but with the transition moving quickly on filling some top jobs, and likely Republican control of both chambers of Congress, advances on pro-business initiatives may be fairly swift.
Conclusion: The U.S. stock market surged to a record high following the Presidential election, with broader sector participation. With sentiment in place that the Fed will continue loosening monetary policy next month, the stage may be set for another late-year “Santa Claus” rally. In this environment, we think a portfolio led by equities is warranted.
Source: ValueLine.com
