November 2024 Market Lookback

Investor appetite for risk-taking was unleashed in the aftermath of the 2024 presidential election. U.S. stocks had their best month in a year, with optimism over the coming administration’s policy stances lifting the more cyclical and speculative parts of the market. International markets were less fortunate, as appreciation of the dollar and the potential for tariffs weighed on their prospects. U.S. economic growth remained solid, though high Treasury yields and mortgage rates continue to pose challenges to the housing market. Against this backdrop, the Federal Reserve lowered interest rates by 25 basis points again, as it continues to normalize monetary policy.

Macro

• The Fed lowered the fed funds rate by 25 basis points to a target range of 4.50%-4.75%.

• Fed officials discussed the possibility of lowering the overnight reverse-repo rate by 5 basis points, which would effectively increase liquidity by making it less attractive to park cash with the Fed.

• Initial jobless claims fell to 213k, the lowest level since April, while continuing claims rose to 1.907m, the highest level since November 2021.

• New home sales declined to 610k in October versus consensus of 725k, the biggest downside surprise since March 2014.

• Excluding defense and aircraft, capital goods orders fell 0.2% in October versus an expected increase of 0.1%, while the prior month’s increase was revised down from 0.7% to 0.3%.

• The U.S. Dollar Index rose from 104.0 at the start of the month to 107.6 on November 22, its strongest level since last November, before slightly retreating.

Equities

• Buoyed by post-election optimism around looser regulations, U.S. stocks had their best month since last November.

• Small-cap growth stocks returned 12.3%, their best month since November 2020 when vaccine news boosted investor sentiment.

• Dollar strength hurt international stock performance, with both developed and emerging markets negative on the month.

• Q4 earnings expectations were revised down by 0.8%, with Materials (-3.8%), Energy (-3.1%) and Consumer Staples (-2.2%) seeing the biggest downward revisions.

Fixed Income

• With the result of the 2024 presidential election, the MOVE Index (i.e. interest rate volatility) declined from 135.2 to 95.2, the biggest single-month drop since November 2020.

• Investment grade and high yield credit spreads narrowed to 74 and 253 basis points, respectively, on November 12, the narrowest levels since before the 2008 Financial Crisis.

The Trump Trade

One of the most unprecedented presidential elections in history finally came to a head last month, with former President Donald Trump emerging as the winner. Policy changes are likely as a result, though the exact mix is uncertain. The market reaction has been confident and optimistic though.

While the S&P 500 rose by a robust 2.5% the day after the election, the cyclical bellwethers of Financials, Consumer Discretionary and small-cap growth stocks jumped 6.2%, 3.6%, and 5.4%, respectively. Bitcoin also skyrocketed, but its November return of nearly 40% would have taken it literally off the chart above.

Have things fundamentally changed enough to justify the price action? Not really. But investors believe they could. The belief that the incoming administration will be more pro-business through deregulation and lower taxes is what helped unleash animal spirits. And while more trade tariffs would likely weigh on markets, investors mostly see these threats as a negotiating tool for now. Crucially, the only way to disprove current investor expectations is for time to pass and for us to see what will come. That could keep the rally going, at least for now.

Election Implications

There were other elections besides the presidency, however. On the congressional side, interpreting the election results requires some nuance. The Republican party was able to maintain control of the House (albeit with an extremely narrow margin), while retaking the Senate. So, while Republicans are technically in the driver’s seat for the next two years, they can’t afford any defections within the party if the Democrats are unified in opposition.

Environments like this typically mean less risk of big changes (i.e., gridlock), but that typical pattern might not hold this time since some provisions from the 2017 Tax Cuts and Jobs Act expire at the end of 2025. According to KPMG, the expirations would effectively raise taxes by over $4 trillion, so there could be considerable pressure to address it.

The debt ceiling limit will also be reinstated on January 1. Somewhat paradoxically, this would be a temporary liquidity boost for markets until it’s resolved: Instead of the private sector having to absorb Treasury debt issuance (i.e. money would flow from the private sector to the government), the U.S. Treasury would draw down the cash it has in the Treasury General Account (i.e. money would flow from the government to the private sector). Although there is wind at the market’s back right now, the uncertain outlook will likely keep the prospect of volatility going into next year.

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Performance data quoted represents past performance. Past performance does not guarantee future results. Market returns will fluctuate, and current performance may be lower or higher than the standardized performance data quoted.