Chicago: 312-580-0900 | Suburban: 847-831-8831 | Family Office: 312-338-7788| Financial Planning: 312-440-5028 | Benefits: 847-831-8831

Last Week

The good news for value investors is that on Friday the IVE (iShares S&P 500 Value ETF) snapped its 14-day losing streak. During that stretch, the Index lost more than 8%, which almost qualifies as a correction. The Small Cap Value Index has fared about 2% worse, leaving both indexes below their pre-election levels. This reaction is curious given that value stocks are more sensitive to the economy and, therefore, should be getting a boost from the recent data and the incoming administration’s pro-business agenda. The damage was widespread during the last week, with the S&P 500 shedding 2%, the IVE down 3.2%, the Nasdaq Composite dropping 1.8%, and the Russell 2000 sliding 4.5%. Declining issues overwhelmed advancing issues by a factor of more than 6-1, with every industry sector in the red. The yield on the 10-year Treasury increased 12-basis points to 4.52% and reached its highest level in six months.

Uncertainty creates volatile markets, and we are entering uncharted waters with unknown consequences (or rewards) based on many of the wide-ranging proposals from the Trump administration. Additionally, the hawkish tone of the Federal Reserve is contributing to the uncertainty. On Wednesday, the Central Bank delivered the anticipated 25-basis point interest rate cut, but its updated Summary of Economic Projections, or dot plot, showed higher inflation and fewer rate cuts in 2025, with chair Jerome Powell stressing caution going forward. All the damage in the equity markets last week came during Powell’s uncomfortable and lengthy press conference following the FOMC statement. We would like to rewrite and condense his script to “We are lowering rates 25-basis points, which leaves monetary policy still 75-basis points tighter than neutral. Unless the data dictates a different course, we intend on lowering rates by 25 basis points at each meeting until we reach that neutral rate.” Yet another way to interpret the Powell comments is that the Fed remains data-dependent or has no change from prior strategic comments, so perhaps the significant market sell-off was more of a temper tantrum that financial markets seem to experience periodically.

A soft reading in the November core personal consumption expenditures price index (the Fed’s preferred inflation gauge) on Friday helped snap the downward spiral. That release fits in nicely with the view of rational monetary policy we just articulated and should further bolster the case for value stocks in all market capitalizations. The Fed’s preferred inflation gauge (reported Friday) suggests more easing in 2025 than reflected in financial markets this past week, which suggests our approach of under-reacted to any one data point remains prudent.

There does not appear to be a case to bolster on the Chicago Sports Scene this winter. North Star Team Members Brooke and Eric Kuby journeyed to the United Center and analyzed the wide talent discrepancy between the Boston Celtics and the Bulls. Meanwhile, the Blackhawks and Bears both are comfortably settling into the cellar of their respective divisions. Bah humbug.

This Week

Monday could be a busy day with the release of the December Consumer Confidence Index. The November reading was the highest since the summer of 2023, and December is expected to show further improvement. The durable goods report for November is also on the calendar, and it is expected to decline modestly from the previous month.

Trading could be light the rest of the week, with the markets closed Christmas Day on Wednesday.

We would like to wish everyone a happy holiday. In the words of John & Yoko:
We hope you have fun
The near and the dear one
The old and the young

A very Merry Christmas
And a happy New Year
Let’s hope it’s a good one
Without any fear

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.