Weekly Market Commentary November 11, 2024

The Markets

Stock markets celebrated the results of the presidential election. Bond markets were less enthusiastic.

Last week, United States stock markets rallied, and the U.S. dollar gained against other currencies, following the presidential election. The CBOE Volatility Index, Wall Street’s Fear gauge, also moved lower after concerns about a long wait for election results were quelled by a swift result, reported Alexandra Semenova of Bloomberg.

“…the [stock] markets roared in approval of this Trumpvember surprise…Yes, expect tax cuts, less regulation, fewer guardrails, and a government no longer picking winners and losers (except for tariffs), all reasons why investors perceive the incipient environment to be advantageous. And yet, with all the dancing, dancing, dancing in the streets, note that this new freedom could be accompanied by greater risk in the capital markets,” reported Andy Serwer of Barron’s.

The bond market’s response to the election was measured. The Federal Reserve (Fed) began lowering the federal funds rate in September. Typically, Fed rate cuts lead to lower borrowing costs for consumers and businesses, which supports economic growth. However, the yield on the 10-year U.S. Treasury, which is a benchmark for mortgage rates, corporate bonds, and other loan rates, has trended higher since September as strong economic data caused the market to rethink its expectations for future rate cuts.

Now, the bond market is evaluating future rate cuts in the context of the new administration’s policies. “…the outlook for further rate cuts has been clouded by expectations that key elements of Trump’s economic platform such as tax cuts and tariffs will lead to faster growth and higher consumer prices. That could make the Fed wary of risking an inflationary rebound by cutting rates too deeply next year,” reported Davide Barbuscia and Lewis Krauskopf of Reuters.

Markets are likely to remain volatile over the coming weeks as investors speculate about the impact of new policies on financial markets. Last week, major U.S. stock indices surged higher. Yields on U.S. Treasuries were mixed with yields moving lower on the shortest and longest maturities and rising for other maturities.

 

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

IT’S A DIRTY JOB…If you’re a fan of baseball, you probably know that major league baseball teams don’t use balls that are fresh out of the box. In fact, the Official Baseball Rules for 2024 explains umpires’ pregame duties which include:

 

“Receive from the home Club a supply of regulation baseballs, the number and make to be certified to the home Club by the Office of the Commissioner. The umpire shall inspect the baseballs and ensure they are regulation baseballs and that they are properly rubbed so that the gloss is removed. The umpire shall be the sole judge of the fitness of the balls to be used in the game.”

Usually, the gloss is removed by rubbing Lena Blackburne Baseball Rubbing Mud into the unused baseballs. “Originally marketed as ‘magic,’ it’s just a little thicker than chocolate pudding—a tiny dab is enough to remove the factory gloss from a new ball without mucking up the seams or getting the cover too filthy. Equipment managers rub it on before every game, allowing pitchers to get a dependable grip,” reported Emma Baccellieri of Sports Illustrated.

The mud is sourced from a secret location, somewhere along a tributary of the Delaware River, has been passed from generation to generation of this family business since the 1930s. The mud is unique because it has “a high clay content in the soil, an oddity for the area, plus brackish water from the tributary mixing with ‘cedar water’ dropping from nearby trees. Perfect conditions exist for only about a mile.” Jim Bintliff told Baccellieri.

Recently, researchers at the University of Pennsylvania School of Engineering and Applied Science and School of Arts & Sciences studied the mud and then published their findings in Proceedings of the National Academy of Sciences. According to ScienceDaily, the paper’s lead author devised three experiments to determine whether mudding baseballs is a superstition, like rally caps and playoff beards, or a value-adding process. The experiments measured the mud’s spread-ability and stickiness, as well as any change in “friction against the fingertips.”

The experiments confirmed baseball players’ long-held belief that magic mud really does improve the performance of baseballs. The substance “spreads like a skin cream and grips like sandpaper,” according to the research.

Weekly Focus – Think About It
“Baseball is 90 percent mental. The other half is physical.”
—Yogi Berra, baseball legend

Weekly Market Commentary November 04, 2024

The Markets

Are we witnessing an historic event?

For an airplane or a spacecraft, a soft landing occurs when the vehicle “touches the ground in a controlled and gradual way that does not damage it,” according to The Britannica Dictionary.

For the American economy, a soft landing happens when the Federal Reserve raises interest rates to cool the economy and push inflation lower—and achieves its goal without causing a recession and significantly higher unemployment. It’s not an easy task.

“Historically, soft landings have been tough to pull off…Keeping unemployment and inflation low while at the same time having robust growth is difficult. Threading that needle has proven to be quite elusive,” reported a source cited by Aly J. Yale of The Wall Street Journal.

Solid economic growth, low unemployment, rising wages, and falling inflation have one Federal Reserve official and several economists declaring that the American economy has achieved this rare event—a soft-landing, reported Bryan Mena of CNN.

So, exactly how well is the U.S. doing?

“The extent to which America has outperformed other countries since the start of the COVID-19 pandemic is breathtaking. Its real GDP has expanded by more than 10 [percent], nearly three times as much as the euro area. Among the G20 group, which includes both rich countries and emerging markets, America is the only one where output is above pre-pandemic expectations, according to the International Monetary Fund,” reported Simon Rabinovitch of The Economist.

Last week, “with an election and Federal Reserve meeting still to come, stocks faltered under the weight of the uncertainty,” reported Teresa Rivas of Barron’s. Major U.S. stock indices finished the week lower. Uncertainty about the direction of future government spending and its possible effect on Federal Reserve policy caused some turmoil in bond markets, too, reported Paul R. LaMonica of Barron’s. Yields on longer maturities of U.S. Treasuries moved higher over the week, while yields on shorter maturities moved lower.

PERCEPTION VS. REALITY. The human brain is complex and powerful. It runs on about 20 watts of power and brains need to be recharged, just like your cell phone does, according to Northwestern Medicine.

It’s interesting to note that brains are not objective. They catalogue our experiences, beliefs, and emotions and then interpret what’s happening around us. As a result, our reality on any given day is affected by “our personal physical abilities, energy levels, feelings, social identities, and more,” reported Jill Suttie in Greater Good Magazine.

For example, studies have found that hills look steeper when people are:

  • Tired.
  • Wearing backpacks.
  • Thinking of people they dislike.

In contrast, hills look less steep when people feel energetic or think of a supportive friend.

An August survey from the National Federation of Independent Business, a small-business advocacy group, reinforced the idea that there is a gap between economic perception and economic reality. The survey found that small business owners were quite optimistic about the financial state of their businesses, reasonably optimistic about the state of their local economies, and pessimistic about the state of the U.S. economy.

 

  Excellent/ Good Okay Poor
The current financial state of my business is: 70 percent 25 percent 5 percent
The current state of my local economy is: 36 percent 44 percent 20 percent
The current state of the U.S. economy is: 10 percent 32 percent 58 percent

 

When survey participants were asked when the United States might experience another recession, 52 percent said the U.S. economy was in a recession right now. A recession is a downturn in economic activity that lasts for a significant period. Economic data show the U.S. economy, as measured by gross domestic product (the value of all goods and services produced in the U.S.), has been growing since late 2020.

The answers were interesting because most businesses—small and large—experience declines in sales and profitability when the national economy is doing poorly or in a recession. The gap in perception and reality may reflect the fact that “people are upbeat about what they see directly but pessimistic about what they glean indirectly through media (and social media),” opined Rabinovitch of The Economist.

Weekly Focus – Think About It
“A politician needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year. And to have the ability afterwards to explain why it didn’t happen.”
—Winston Churchill, former British Prime Minister

Sources:
https://www.britannica.com/dictionary/soft-landing
https://www.wsj.com/buyside/personal-finance/banking/what-is-a-soft-landing (or go to Https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Buy%20Side%20from%20WSJ_2.pdf)
https://www.cnn.com/2024/10/30/economy/us-economy-gdp-q3/index.html
https://view.e.economist.com/ (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_The%20Economist_Money%20Talks_4.pdf)
https://www.barrons.com/articles/market-tricked-investors-election-day-bounce-7ea56c39?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Barrons_The%20Market%20Tricked%20Investors_5.pdf)
https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Barrons%20Data_6.pdf)
https://www.barrons.com/articles/bond-yields-jobs-report-treasury-6f6e602e?mod=md_bond_news (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Barrons_Bond%20Yields%20Fell%20After%20Jobs%20Report_7.pdf)
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2024
https://www.nm.org/healthbeat/healthy-tips/11-fun-facts-about-your-brain
https://greatergood.berkeley.edu/article/item/eight_reasons_to_distrust_your_own_perceptions
https://www.sciencedirect.com/science/article/abs/pii/S002210310800070X#:~
https://strgnfibcom.blob.core.windows.net/nfibcom/Banking-Survey-2023-Part-II.pdf [Questions 20-23]
https://fred.stlouisfed.org/series/GDP#0 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_FRED%20Data_13.pdf)
https://www.investopedia.com/articles/economics/08/recession-affecting-business.asp#:
https://www.azquotes.com/quote/56321?ref=funny-political

Weekly Market Commentary

The Markets

Financial markets appear to have pre-election jitters.

The United States election is less than two weeks away. The candidates are neck and neck. The outcome remains uncertain. And expectations for volatility have been rising, with the CBOE Volatility Index (VIX) finishing last week at 20.33.

“When the VIX goes north of 20, Wall Street pays attention because that level signals heightened volatility,” reported Connor Smith of Barron’s.

One reason for heightened volatility may be concerns about the election. Ian Salisbury of Barron’s explained, “There are plenty of theories about how particular stocks will fare, depending on next month’s outcome. It isn’t hard to see why. The candidates have tried to curry favor with voters by championing or attacking favored industries, and sometimes individual companies. Vice President Harris has promised to raise the corporate tax rate, a move that could cut into corporate earnings, and Democrats are widely seen as tougher on antitrust issues, a potential hurdle for Wall Street banks looking to capitalize on pent-up [merger and acquisition] activity. Trump, meanwhile, has threatened hefty new tariffs, which could help U.S. manufacturers but hurt multinationals. He’s even threatened individual companies like John Deere over plans to move manufacturing facilities abroad. The good news? Investors can mostly shrug the campaign rhetoric off and focus on stocks’ fundamentals.”

So far, third-quarter earnings reports have been strong. Regardless, stock market investors became significantly less bullish last week, according to the AAII Investor Sentiment Survey. The survey asked investors whether they think the stock market will move higher (bullish) or lower (bearish) over the next six months.

  • Bullish sentiment declined from 45.5 percent the week of October 16 to 37.7 percent last week. (The historic average for bullishness is 37.5 percent.)
  • Bearish sentiment increased from 25.4 percent to 29.9 percent. (The historic average for bearishness is 31 percent).
  • Neutral sentiment also increased from 29.2 percent to 32.4 percent. (The historic average is 31.5 percent.)

Bond investors also have been adjusting their expectations. Since mid-October, the yield on the benchmark 10-year U.S. Treasury note has trended higher. At the start of the month, the 10-year note yielded 3.74 percent. Last week, its yield rose from 4.07 percent to 4.23 percent.

“The rise is likely a reflection of the fact the Federal Reserve will cut interest rates fewer times than investors had thought after September’s Federal Open Market Committee meeting, a result of inflation being above its target and a job market that has grown faster than expected. Also, Donald Trump’s chances of winning the presidential election have risen in the past few months, according to RealClearPolitics. His policies include fiscal spending and tariffs, both of which create inflation and throw cold water on the idea that the Fed will cut rates many times. While the economy could continue to grow, tariffs, for their part, not only lift prices, they destroy demand,” reported Jacob Sonenshine of Barron’s.

Ben Levisohn of Barron’s offered some advice to anyone getting swept up in pre-election jitters. “The truth of the matter is that reading the financial market tea leaves is far from straightforward…In fact, investing with your politics is one of the worst ways to lose money—or miss out on gains.” If you have concerns about market volatility or the possible effect of the election on your portfolio, get in touch. We’re happy to talk with you about your concerns and your portfolio.

Last week, the S&P 500 Index and Dow Jones Industrial Average moved lower, while the Nasdaq notched a seventh week of gains. Yields on longer maturities of U.S. Treasuries moved higher over the week.

DO YOU TALK ABOUT MONEY? A lot of important events and holidays are coming up in November. There’s Election Day, National Calzone Day, No-Shave November, the International Day for Tolerance and Talk Money Day. That’s right! On November 8, everyone is encouraged to put their fears aside and begin talking with other people—spouses, partners, roommates, friends, adult children, and younger children—about money. It’s not going to be easy—money talk is tough for many people. Sixty-two percent of Americans who participated in a 2023 survey said they did not talk about money. Those who did have financial conversations generally conversed with a spouse or partner, reported Kamaron McNair of CNBC.

There are many reasons people avoid financial conversations. They may:

  • Believe it is impolite to talk about money.
  • Worry that discussions will be awkward.
  • Fear being judged for their choices.
  • Think their money is no one else’s business.

The issue is less prevalent among younger people than it is among older people, according to CNBC. “…56 [percent] of millennials and 49 [percent] of Gen Zers say they’re having financial conversations on the regular, compared with just 38 [percent] of Gen Xers and 22 [percent] of baby boomers…Talking about money can help young people increase their financial literacy as they learn from and teach their friends. But it’s equally important for younger people to bring up financial topics with their elders—or at least their more experienced peers—especially when it comes to making big decisions,” reported McNair.

While breaking down the money-talk barrier may be challenging, the rewards can be significant. Financial discussions can improve decision-making, strengthen relationships, and help children develop sound money habits. Our goal is to help the people we serve make financial decisions that help them live the lives they want to lead. If talking about money is a difficult hurdle, get in touch. We can help facilitate these important discussions.

Weekly Focus – Think About It

“The single biggest problem in communication is the illusion that it has taken place.”

—George Bernard Shaw, Nobel Prize-winning playwright

Sources:

https://www.cboe.com/tradable_products/vix/ (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/10-28-24_Cboe_VIX%20Index%20Charts_1.pdf)

https://www.barrons.com/livecoverage/stock-market-today-102324/card/the-dow-keeps-falling-the-market-s-fear-gauge-is-near-a-key-level–349PmzqKaFkDhC1aYtSc?siteid=yhoof2 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/10-28-24_Barrons_The%20Dow%20Keeps%20Falling_2.pdf)

 https://www.barrons.com/articles/portfolio-stress-test-election-4218808a?mod=hp_LEDE_C_1 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/10-28-24_Barrons_Dont%20Rule%20Out%20a%20Market%20Panic_3.pdf)

https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_102524.pdf

https://www.aaii.com/sentimentsurvey (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/10-28-24_Historical%20Sentiment%20Data_5.pdf)

https://finance.yahoo.com/quote/%5ETNX/history/

https://www.barrons.com/articles/stock-market-danger-zone-tariffs-b2bb22e6?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/10-28-24_Barrons_Stock%20Market%20Enters%20Danger%20Zone_7.pdf)

https://www.barrons.com/articles/stock-market-trump-harris-election-61b41129?refsec=up-and-down-wall-street&mod=topics_up-and-down-wall-street (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/10-28-24_Barrons_Market%20is%20Afraid%20of%20Election%20Day_8.pdf)

https://www.barrons.com/market-data (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/10-28-24_Barrons_Data_9.pdf)

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202410

https://www.calendarr.com/united-states/calendar-november-2024/

https://nationaltoday.com/talk-money-day/

https://www.cnbc.com/2023/05/10/americans-arent-talking-about-money-it-could-hold-you-back.html

https://www.brainyquote.com/quotes/george_bernard_shaw_385438

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