Weekly Market Update: November 11, 2024

The balance of political power in Washington, D.C. will shift in 2025. That is because former President Donald J. Trump was re-elected President and will take the oath of office on January 20th. Likewise, the Republican Party will control the U.S. Senate. At first blush, Wall Street reacted positively, as the outcomes ensure that the U.S. corporate tax rate will not be raised. 

Meanwhile, the nation added an estimated 12,000 jobs in October. That figure fell well short of the consensus forecast of 113,000 and was the weakest tally since December of 2020. However, it should be noted that the anemic nonfarm payroll figure was hurt by two hurricanes this fall and a couple of notable workers’ strikes. On the positive side, payroll processor Automatic Data Processing (ADP) reported that private-sector jobs increased by an outsized 233,000 positions last month, and the nation’s unemployment rate held steady at 4.1%. The “Goldilocks” reports raised the odds that the central bank will reduce the federal funds rate at its final two monetary policy meetings of 2024, the first of which was scheduled to take place after we went to press. 

The inflation situation continues to improve. The Personal Consumption Expenditures (PCE) Price Index, the assessment of inflation most closely tracked by the Federal Reserve, rose 0.2% in September, matching the consensus forecast. On a 12-month basis, the PCE Price Index increased 2.1%, which was just above the Fed’s target rate of 2.0%. This, along with the recent labor market data, suggests that a “soft landing” for the U.S. economy, which expanded by an estimated annualized rate of 2.8% in the third quarter, is plausible. 

Earnings season again proved supportive for stocks. True, there were a few prominent companies that failed to live up to Wall Street’s expectations and their stocks suffered. However, with roughly three-fourths of the S&P 500 companies having reported results as of press time, 75% exceeded profit forecasts. Overall, earnings growth for the Index is averaging 5%, which would mark the fifth-straight quarter of year-over-year gains. 

Conclusion: The major stock indexes hit record highs in early November, powered by supportive corporate earnings news and the U.S. election results. With Treasury yields on the rise again, we think a portfolio consisting mostly of high-quality stocks and cash-equivalent securities is warranted.

Source:ValueLine.com