Last Week
The stock market posted its best advance in over a year as investors embraced the election results. Solid corporate earnings reports and a Fed interest rate cut further boosted the market.
The S&P 500 surged 4.7%, setting its 50th record high of 2024, while the other market cap sectors fared even better. Small Caps were on fire as the Russell 2000 skyrocketed 8.6%, Mid-Caps gained 6.3%, and the Nasdaq Composite added 5.7%. Advancing issues overwhelmed declining issues by almost 4-1, and every industry sector finished in the green. The VIX, or “fear index,” plummeted 31%, marking its most significant weekly drop since December 2021. All that glittered was everything other than gold, which slipped 2%, while the dollar and crude oil inched higher. Even the bond market rallied, with the yield on the 10-year Treasury easing three basis points to 4.31%.
The stock market party got rolling Tuesday and kicked into high gear on Wednesday following the election results in which former President Donald Trump secured the 270 electoral votes needed to win. Additionally, the GOP won the Senate and appeared to have taken control of the House. Most market strategists suggest that reducing corporate taxes and government regulation will likely lift stock prices. However, there is an undercurrent of concern over the ultimate impact of swelling government debt levels and tariffs, which could lead to inflation and higher long-term interest rates. The near-term winners’ list includes Small Caps, the Financials sector, and companies servicing the domestic energy industry. At North Star, our strategies are heavily concentrated in the first two groups, and we have recently increased our investments in the group of companies servicing the oil patch.
On Thursday, the Federal Reserve delivered a 25-basis point rate cut as widely expected, with reasonably dovish comments about the labor market and inflation from Chair Jerome Powell. Reporters peppered Powell with questions about his job security during his first post-election press conference Thursday. Powell’s term expires in May 2026, and he issued a terse “No” in response to a question about whether he would leave his Fed post before his term is up if President-elect Donald Trump asked him to. Whereas the lines between reality and reality TV shows are getting blurred, the host of the show (aka the President) cannot fire Federal Reserve officials.
Corporate profits continued to slightly exceed forecasts as the third quarter earnings season approached its conclusion. Solid results from companies in the Healthcare sector led to an increase in the overall growth rate, 5.3%, from 5% the week prior.
Somewhat less noticeable given all the historic domestic news flow, on Friday, the Chinese central government unveiled a plan to re-finance local government debt that ballooned during the last decade. According to CNBC and other sources, this latest move would help local governments over the next 5 years by allowing debt swaps with the central government to reduce the interest expense burdens at local economic levels. China also signaled that more support was likely in the New Year. By comparison, this $1.4 trillion (10 trillion yuan) in support to local governments is twice the size of the original TARP loan facility created by the U.S. Congress to support the U.S. banking system at the start of the Great Recession. The health of the Chinese economy and U.S./China relations could become increasingly important to investors as we move into 2025.
This Week
With the election and the Federal Reserve’s latest quarter-point interest rate cut in the rearview mirror, the focus turns to the economic calendar. The October consumer price index data will be released on Wednesday, followed by the retail sales report on Friday.
Traders will also have to process whether the recent “Trump Trade” gains are sustainable, or if there is even more upside.
There is very little upside for Chicago sports fans this winter. Following an abysmal performance on Sunday, the Bears join the Bulls and the Blackhawks as sub-500 teams with sinking prospects.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.