Weekly Economic Update: November 26, 2024
Presented by Nicholas Wealth Management
The markets resumed their upward march last week, recouping much of the previous week’s losses and closing in on record highs. It appeared markets shrugged off comments from Federal Reserve Chair Jerome Powell regarding the potential slowing or decreasing of rate cuts and returned to optimism about where businesses and the economy may head in 2025.1
Only time will tell if the optimism pans out, but right now, there’s a lot of enthusiasm. Markets have downgraded the all-but-certain 25-basis-point (.25%) cut in December to a 50/50 toss-up.2 That initial realization is what sent markets scurrying in mid-November, but the enthusiasm is hard to hold back — whether it’s from Bitcoin pushing $100,000 or great earnings dispelling fears.3,4 Even disappointing earnings from NVIDIA didn’t cause the market to stumble last week.5
This week will include Black Friday, and it will be interesting to see how strong the consumer will be and if the market’s enthusiasm will carry into the holiday shopping season. But the recent market action isn’t something investors should get accustomed to; in fact, it may be a good idea to adjust allocations to make sure you don’t get overextended. We’re not saying to do anything drastic, but rebalancing back to your natural risk levels might make sense from a tax perspective. You could do that before 2024 is over if you have losses to offset gains or in early 2025 so you have the rest of the year to help manage your tax situation. We’ve enjoyed a prolonged market rally, but we will have a correction sooner or later — that’s just how markets work.
Things are heating up globally — and likely not in a good way
If anything will spoil the market’s mood, it’s geopolitics. The ante has gone up in the Russia-Ukraine conflict, as the Biden administration has authorized the use of missiles against targets in Russia.6 Why is this significant? Because Ukrainians are not trained on the system and the missiles need to be fired by NATO personnel, which brings NATO one step closer to direct conflict with Russia.
The Russians view this as an act of war by NATO, so they may decide to escalate. If the conflict expands, the markets will likely feel it literally overnight — and with where levels are right now, it probably wouldn’t take much to spook the herd and send the markets downward. As mentioned earlier, it may be time to take advantage of what the markets have given us and not be complacent.
Coming This Week
- This should be a short week, with most of the action concentrated on Tuesday and Wednesday. Markets will be closed on Thursday for Thanksgiving and close early on Friday.
- No data is scheduled to be released on Monday. On Tuesday, we will have the Case-Shiller home price index for September, which reports the change in home prices in 20 cities around the country. We’ll also get consumer confidence and new home sales, plus the minutes from the most recent Fed meeting.
- On Wednesday, we’ll see MBA mortgage applications, unemployment claims and pending home sales. The more substantial data will come in the form of the first revision of third-quarter gross domestic product (GDP) and inflation data from the personal consumption expenditures (PCE) and Core PCE readings. PCE was at 2.1% last month and Core PCE was at 2.7%.7 Remember, the core reading excludes “volatile and seasonal” food and energy prices, so the elevated core level is telling us we still have substantial inflation.
- Third-quarter earnings reporting is almost complete, with 93% of the S&P 500 checking in.8 As of Nov. 15, 75% of the companies had reported positive earnings per share (EPS) and 61% reported positive revenue. Earnings growth for the third quarter is 5.4%, the fifth straight year-over-year earnings growth for the S&P 500.
Sources:
1 Christopher Rugaber. PBS News. Nov. 21, 2024. “Federal Reserve’s likely rate cut slowdown could disappoint borrowers.” https://www.pbs.org/newshour/nation/federal-reserves-likely-rate-cut-slowdown-could-disappoint-borrowers. Accessed Nov. 24, 2024.
2 CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Nov. 24, 2024.
3 Josh Schafer. Yahoo! Finance. Nov. 22, 2024. “US economic output hits highest level since April 2022 amid ‘greater optimism’ among businesses.” https://finance.yahoo.com/news/us-economic-output-hits-highest-level-since-april-2022-amid-greater-optimism-among-businesses-160036434.html. Accessed Nov. 24, 2024.
4 Dhara Ranasinghe, Tom Westbrook and Hannah Lang. Reuters. Nov. 22, 2024. “Bitcoin at record highs, sets sights on $100,000.” https://www.reuters.com/technology/bitcoin-record-highs-sets-sights-100000-2024-11-22/. Accessed Nov. 24, 2024.
5 NVIDIA. Nov. 20, 2024. “NVIDIA Announces Financial Results for Third Quarter Fiscal 2025.” https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-third-quarter-fiscal-2025. Accessed Nov. 24, 2024.
6 NPR. Nov. 23, 2024. “NATO and Ukraine to hold emergency talks after Russia’s attack with new missile.” https://www.npr.org/2024/11/23/g-s1-35601/nato-ukraine-emergency-talks-russia-attack-hypersonic-missile. Accessed Nov. 24, 2024.
7 Bureau of Economic Analysis. Oct. 31, 2024. “Personal Consumption Expenditures Price Index.” https://www.bea.gov/data/personal-consumption-expenditures-price-index. Accessed Nov. 24, 2024.
8 John Butters. FACTSET. Nov. 15, 2024. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_111524.pdf. Accessed Nov. 24, 2024.
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