Last Week on Wall Street – November 9th, 2024

S&P 500: +4.70% DOW: +4.63% NASDAQ: +5.76% 10-YR Yield: 4.30%

What Happened?

The stock market climbed to new highs, with the S&P 500 closing just below 6,000 and all major indexes posting significant gains following Donald Trump’s election victory and a 25-basis-point rate cut by the Federal Reserve. The Dow gained 4.61%, the S&P 500 rose 4.66%, and the Nasdaq climbed 5.74% for the week, reflecting strong investor optimism about pro-growth policies under a Republican-led government. Small caps, measured by the Russell 2000, led the charge with an 8.57% weekly gain. Falling long-term Treasury yields and reduced volatility further boosted equities. Consumer discretionary and energy sectors outperformed, driven by hopes for economic growth, while all 11 S&P sectors ended the week in positive territory.

The Fed’s rate cut brought the target range to 4.5%-4.75%, with policymakers signaling further cuts ahead as they focus on supporting employment. Meanwhile, consumer sentiment hit a seven-month high, supported by strong labor and productivity data. Inflation remains a key concern, with upcoming CPI and PPI reports expected to guide future Fed policy. Corporate earnings showed resilience, with 75% of S&P 500 companies beating profit estimates, though valuations remain elevated with a P/E ratio of 22.2 compared to a 10-year average of 18.1. Despite record highs, analysts caution that the market’s overbought status and stretched valuations could lead to near-term volatility.

What Trump’s Historic Election Victory Means For The Global Economy

Donald Trump’s election victory marks a historic return to the White House – an extraordinary political comeback that is likely to have seismic ramifications for the global economy.
The former president’s litany of campaign pledges include steep tariffs, tax cuts, deregulation and a push to withdraw from key global agreements.

The key takeaway – Donald Trump’s election victory marks a historic return to the White House, bringing with it a contentious and transformative economic agenda. His plans include steep tariffs, tax cuts, and deregulation, with a primary focus on targeting China through higher tariffs, which analysts warn could increase consumer prices, slow spending, and disrupt global trade. Europe is likely to face significant economic challenges under a Trump presidency, as tensions over trade and capital relocation are expected to intensify, while Asia, particularly China, braces for heightened volatility and economic headwinds.

In the U.S., Trump’s policies could boost domestic industries such as defense, fossil fuels, and manufacturing, but may also exacerbate global instability, particularly in regions like Ukraine and the Middle East. Analysts remain divided on the extent of his impact, noting that unified congressional control could enable more radical policy shifts, including universal tariffs. Investors are advised to prepare for heightened uncertainty, potential trade disruptions, and evolving geopolitical risks as Trump’s second term unfolds.

Fed Cuts Rates Again, This Time by a Quarter Point

The Federal Reserve approved a quarter-point rate cut, bringing the federal-funds rate to 4.5%-4.75%.
Officials remain divided on the pace of future cuts, balancing the need to control inflation with avoiding excessive labor market weakening.
Recent data suggests that the Fed’s approach is finely balanced, with inflation slightly above target and the unemployment rate edging lower.

The key takeaway – In September, inflation edged closer to the Federal Reserve’s 2% target, with the personal consumption expenditures (PCE) price index rising 0.2% monthly and 2.1% annually. Excluding food and energy, core inflation increased by 0.3% for the month and 2.7% over the year, showing persistent price pressure in services while goods prices declined. The report supports expectations for a Fed rate cut next week, following September’s unusual half-point rate reduction.

Additionally, personal income rose 0.3% and consumer spending increased 0.5%, while the personal saving rate fell to 4.6%, its lowest this year. The labor market remained steady, with initial jobless claims down to 216,000, signaling companies are retaining workers. The employment cost index showed a 0.8% rise in the third quarter, slightly below expectations but indicating wage growth continues.

US Consumer Sentiment Rises in November, UMich Says

The University of Michigan’s Consumer Sentiment Index climbed to a seven-month high in early November.
The survey’s expectations index climbed nearly 6% to a three-year high.
Republicans’ expectations rose significantly, while Democrats’ expectations improved modestly, and Independents’ sentiment declined.

The key takeaway – Consumer sentiment in the U.S. has seen a significant boost, reaching a seven-month high in early November. This uptick is driven primarily by a surge in expectations for the future, particularly among Republicans. The University of Michigan’s Consumer Sentiment Index climbed to 73.0 this month, exceeding expectations and marking the highest point since April.

The survey’s expectations index saw a notable increase of nearly 6%, reaching its highest level since July 2021. This optimism is fueled by improving income prospects and a more favorable outlook on short-term and long-term business conditions. However, a closer look reveals a partisan divide. While Republican sentiment soared, Democratic expectations saw a more modest improvement, and Independent sentiment declined. Despite this divergence, overall consumer sentiment has benefited from easing inflation concerns, though longer-term inflation expectations remain elevated compared to pre-pandemic levels. The Federal Reserve’s recent rate cuts have also contributed to the positive outlook.