Daily market snapshot

Thursday, 11/07/2024 p.m.

• Stocks close higher on Fed Day – Major equity markets added to strong gains from earlier in the week, driving the S&P 500 and Nasdaq to new record highs. Sector performance was broad, as communication services and technology stocks led markets higher, reflecting a risk-on tone. Bond yields declined in a reversal of their trend higher over the past several weeks. In global markets, China was up on higher-than-expected exports for October*. Europe also traded higher, as the Bank of England cut interest rates by 0.25%. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil rose on concerns over the possibility of increased sanctions on Iran and Venezuela following the election*.
• Federal Reserve cuts policy rate for a second time – The Federal Reserve's Federal Open Market Committee (FOMC) cut its target range for the fed funds rate by 0.25% to 4.5% - 4.75%, as expected*. The FOMC's statement included a comment that the committee believes its goals of achieving maximum employment and inflation near 2% are roughly in balance**. Bond markets are pricing in expectations for another 0.75% of rate cuts through 2025, which would put the fed funds rate in the 3.75% - 4% range***. We expect the Fed to be able to continue cutting rates, though the pace may start to slow, as FOMC aims to achieve a soft landing for the economy. Lower interest rates typically reduce borrowing costs for businesses and consumers, which would be positive for economic growth and corporate profits.
• Jobless claims edge higher: Jobless claims rose to 221,000* this past week, as expected, up from 218,000 the prior week. This reading reflects a labor market that is gradually normalizing from a period of outsized strength, which we believe is supportive of continued growth and the "soft landing" narrative for the U.S. economy. A cooling labor market should also lead to slower wage gains ahead, which typically ease services inflation. Labor productivity increased 2.2% in the third quarter, up from 2.1% the prior quarter but below estimates calling for 2.3%. Rising productivity drives higher production relative to total hours worked, which is also positive for continued economic growth.

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet **CME FedWatch}

Wednesday, 11/06/2024 p.m.

• Stocks rise to a record after Trump win – U.S. equity markets finished broadly higher as Donald Trump reclaimed the White House, surpassing the 270 electoral votes needed to win the presidency. The decisive win removed the overhang of an unclear or contested outcome, clearing a source of uncertainty, and triggering a risk-on market reaction. The Senate has already been called for the Republicans, while the House of Representatives is still up for grabs. While Republicans project confidence about controlling the House as well, any majority will likely be slim no matter which party wins. 
  
  Over the past couple of months Trump's election prospects have been closely related with higher Treasury yields, a higher U.S. dollar, and outperformance from cyclical stocks, and these were the areas of the market that experienced the biggest moves after the election result. Based on the proposals for tax cuts, deregulation and tariffs, the potential scenario of a Republican sweep is seen as boosting economic growth in the short term, but also leading to higher inflation, government debt and interest rates. Small-cap stocks outperformed, rallying 5.5% on stronger growth hopes, but Treasury bonds were under pressure, with the 10-year yield hitting a four-month high on inflation and fiscal debt concerns*. Over the coming days and weeks investors will likely shift their focus to how many of the campaign promises may be implemented and over what time frame, with the makeup of Congress being a key deciding factor.
• Positive fundamentals offer stability – While the dust may take some time to settle after the election, markets will continue to take their cues from the outlook for economic growth, earnings and Fed policy. These are the long-term determinants of market performance, and they currently suggest that fundamental conditions remain more favorable than hurtful. Starting with growth, the economy has consistently defied expectations for a recession over the last two years, even expanding at an above-average pace. While a moderate slowdown is likely, several indicators remain strong: incomes are rising, jobs are being created, and consumers remain financially healthy. Additionally, lending standards have stopped tightening, and loan growth appears to be bottoming out. This forms a solid foundation for rising corporate profits, with S&P 500 earnings growth projected to accelerate from 0.5% in 2023 to 9% this year and 14% in 2025*. Though next year's estimates may be a bit optimistic, the upward trajectory can help sustain the bull market, which has now entered its third year. On the interest-rate front, the improvement in inflation is allowing the Fed to gradually remove some of its restriction and likely lower interest rates through 2025, including its second rate cut likely this Thursday. The upshot is that positive growth, rising earnings and falling interest rates are consistent with the Fed possibly achieving a soft landing.
• Broadening theme intact, volatility creates opportunities in bonds, but inflation and debt concerns are top of mind - Given the supportive fundamental conditions and the overhang of an uncertain outcome removed, we maintain our positive view on equities. The potential for tax cuts and deregulation may provide an additional tailwind to our theme of broadening market leadership, which has started to take shape in the third quarter. Cyclical sectors, along with small- and mid-caps, have room to catch up as the market rally broadens beyond tech. However, we would also caution that markets historically tend to overact the day after the election, so it wouldn’t be surprising if some of the initial optimism fades in the coming days. On the fixed-income side, a potential Republican sweep may bring fiscal concerns back to the forefront amid growing deficits and elevated debt. However, we think higher yields offer another chance to extend the duration of portfolios ahead of lower rates on cash investments. A slower pace of Fed rate cuts is possible if inflation proves persistent, and this is reflected in today's adjustment to rate expectations, but we think that yields are currently attractive and at the high end of their potential range. Repositioning into intermediate- and long-term bonds where appropriate can help lock in the high yields for longer.

Angelo Kourkafas, CFA 
Investment Strategy

^{Source: *FactSet} 

Tuesday, 11/05/2024 p.m.

• Stocks close higher on Election Day - Major equity markets traded higher today, with small- and mid-cap stocks leading large-cap stocks. Sector performance was broad, as consumer discretionary and industrial stocks posted the largest gains. Bond yields were down, in a reversal of their recent trend higher, as bond markets have reduced expectations for Federal Reserve (Fed) interest-rate cuts to a slower and shallower path**. In global markets, Asia and Europe were mostly higher*. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil extended gains following the OPEC+ decision to push back its planned production hikes by a month. Gold also traded higher.
• Markets focus on presidential election and FOMC meeting – Polls suggest the race between the candidates remains tight, which could lead to a drawn-out process of recounts and no definitive winner on election night. While political uncertainty can drive market volatility in the short term, we'd remind investors that over the long run, markets are driven by the economy and fundamentals, both of which are moderating but remain solidly positive, in our view. Though it could take some time, the resolution to the election results will remove uncertainty that has been an overhang for markets for several months. On the monetary-policy front, the Fed's Federal Open Market Committee (FOMC) will conclude its November meeting on Thursday, with markets expecting a 0.25% interest-rate cut**. If the Fed cuts, it would mark the second rate cut of this cycle, bringing the policy-rate target range to 4.5% - 4.75%. In our view, the Fed is likely to cut rates by 0.25% on Thursday and deliver another 0.25% rate cut at its December meeting.
• Corporate earnings have been strong relative to expectations - With 76% of companies reporting third-quarter earnings results, 74% have beaten analyst estimates, resulting in 5.2% earnings growth year-over-year*. Earnings growth has been broad, with eight of the 11 sectors delivering higher earnings year-over-year*. The three sectors forecast to have lower earnings – energy, industrials and materials – represent less than 15% of the market capitalization of the S&P 500*. Broadening earnings have contributed to a rotation in market leadership. Over the past six months, the real estate, financials, utilities and consumer discretionary sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet **CME FedWatch}

Monday, 11/04/2024 p.m.

• Stocks post modest losses ahead of U.S. election day – Major equity markets were mostly lower on Monday, with all eyes on the 11/5 U.S. presidential election. From a leadership standpoint, energy was a standout, gaining over 1.5%, reflecting strength in oil prices, while most other sectors closed flat to lower. Overseas, Asian markets were higher overnight, while European markets closed mostly higher as well. After a sharp run higher in recent weeks, bond yields finished lower, with the 10-year Treasury yield ticking down to 4.3%.* In the commodity space, oil prices were higher by about 3% following an OPEC+ decision to delay a planned production increase by one month.* Elevated geopolitical tensions in the Middle East played a role in higher oil prices as well, with reports surfacing over the weekend that Iran is planning a retaliatory response to Israel's late-October airstrike.
• Presidential election and FOMC meeting headline a busy week – The U.S. presidential election will no doubt dominate headlines for the week. Polls suggest the race is tightly contested, which could lead to a drawn-out process of recounts and no definitive winner on election night. While political uncertainty can drive market volatility in the short term, we'd remind investors that over the long run, it’s the economic backdrop and fundamentals that drive markets, not politics. Turning to monetary policy, the FOMC will conclude its November meeting on Thursday, with markets expecting a near 100% probability that policymakers will deliver a 0.25% rate cut.* If expectations come to fruition, this would mark the second Fed rate cut of this cycle and bring the policy-rate target range to 4.5% - 4.75%.* In our view, the Fed is likely to cut rates by 0.25% on Thursday and will likely deliver another 0.25% rate cut at its December meeting.

• How do stocks perform after election day? – With election day fast approaching, it can be easy to get lost in political headlines. We'd remind investors that despite volatility around election day, stocks have historically performed well in the months that followed. The study below details how the S&P 500 has performed after election days since 1952.

  • 1 day after: Since 1952, the average return of the S&P 500 on the day after a U.S. presidential election is -0.3%, with returns positive only 44% of the time.**
  • 1 month after: One month post-election day, the S&P 500 has seen better returns, gaining on average 1.3%, with returns positive 61% of the time.
  • 6 months after: In the six months following election day, the S&P 500 has on average gained 5.5%, with returns positive 72% of the time.
  • 1 year after: The S&P 500 gained 8.6% in the one year following election day, with returns positive 61% of the time.

  While there is no guarantee history will repeat itself in 2024, we believe this should offer investors confidence that equity markets can overcome any short-term bouts of politically driven volatility, regardless of political outcomes.

Brock Weimer, CFA 
Associate Analyst

^{Source: *FactSet. **Morningstar Direct and Edward Jones. S&P 500 Price Return, 1952 - 2020.} 

Friday, 11/01/2024 p.m.

• Stocks rise to kick off November – U.S. equity markets finished higher on Friday, helped by tech earnings and expectations that the Fed will cut interest rates next week. A weak but also noisy jobs report that was impacted by the hurricanes and the Boeing strike initially drove yields lower, but the move later reversed and the 10-year Treasury yield finished at a four-month high*. On the corporate front, shares of Amazon climbed 6% after the company reported better-than-expected profitability, and shares of Intel rose roughly 8% on positive guidance*. On the flip side, Apple's earnings were met with some skepticism after a modest disappointment in revenue guidance. Overall, sentiment was positive to start the new month, with all major indexes higher, while the traditionally defensive sectors underperformed. Elsewhere, oil prices were marginally higher, as investors digested headlines about potential Iran retaliation to last weekend's airstrikes.
• Storms and strike drive soft jobs report – The U.S. economy added 12,000 jobs in October, missing consensus expectations for a 100,000 increase, and the slowest pace of hiring since 2020. Health care and government continued to drive the hiring, while manufacturing employment decreased by 46,000 jobs, largely due to the Boeing strike*. The two recent hurricanes also likely had an impact, as the number of workers who reported they couldn’t be at work due to bad weather surged, creating additional noise in the data. Nonetheless, the prior two months' job gains were revised downward, indicating that the September report was not as strong as it first appeared, providing more confidence that the Fed will continue to cut rates in its two remaining meetings of the year. The rate of unemployment held steady at 4.1%, and the hourly wage gains held steady at 4%*. The key takeaway, in our view, is that temporary disruptions had a discernible impact on the labor market last month, but, when trying to isolate these factors, the trend of a gently cooling labor market likely persists, allowing the Fed to continue removing its restriction in the months ahead.
• Higher yields and election uncertainty weighed on October sentiment – After five months of gains, stocks posted a modest decline last month, as a rally in Treasury yields and next week's U.S. election uncertainty provided reasons for caution. October was the worst month for government bonds in two years, driven by a combination of stronger-than-expected economic and inflation data that led to a shift in Fed expectations*. Concerns over U.S. debt also added to the recent bond volatility. Next week the market will be focused on the presidential election, which may trigger a knee-jerk reaction. Yesterday's rise of the volatility index (VIX) to the highest since August is consistent with the historical pattern of bigger price fluctuations around Election Day*. Despite the near-term uncertainty, the fundamental environment remains supportive. Yields appear to be rising for the right reasons, with the economy resilient, as indicated by this week's GDP data, and recession probabilities have dropped. We would view any election-driven pullback opportunistically, and we don't expect much further upside in yields as the Fed gradually cuts interest rates further through 2025.

Angelo Kourkafas, CFA 
Investment Strategy

^{Source: *FactSet}