Market Commentary: November 2024

GeoWealth's Market Observations

INSIGHTS FROM OUR INVESTMENT SOLUTIONS TEAM

November's Key Themes:

• Equity markets surged in the final weeks of the month as the S&P 500, Dow Jones Industrial Average, Nasdaq Composite, and Russell 2000 all finished in positive territory.  
• Markets largely shrugged off weakening economic data at the end of November, including a slight increase in the Fed’s preferred inflation gauge, Core PCE. Investors also appeared unfazed by the potential inflationary pressures posed by tariff proposals from the incoming administration.

• ETFs investing in Bitcoin and Ether saw record inflows in November, $6.4 billion and $1.4 billion, respectively, as the cryptocurrencies have been buoyed by what investors believe is a more favorable administration. The combined ETF ownership of Bitcoins stands now at roughly 5% of the total supply, as institutional and government ownership adds volatility and risks to investor concerns. 

Animal Spirits Have Returned

Equity markets rallied after the election in November and saw risk-on sentiment continue in the weeks after the election. The prospects of potentially lower taxes and deregulation have brought enthusiasm back to US equities and are pushing US Large-caps towards having the best year versus the rest of the world since 1997. Flows into US markets have continued despite the ever-growing valuation gap between American assets and the rest of the world. Even as markets rose in November, the flows into US stocks only accelerated as investors believed earnings growth would remain strong.

While investors rush back into US markets, strategists and economists are increasingly raising concerns about the widening valuation gap between the US and the rest of the world. The extreme divergence—characterized by bullish sentiment toward US equities and bearishness elsewhere—highlights a fragile optimism that hinges on the US economy's ability to withstand potential blowback from its own policies. Adam Slater of Oxford Economics cautioned, "The market optimism may be premature if aggressive US tariff increases are met by large-scale retaliation." Such a scenario could undermine the resilience narrative driving US equity markets and exacerbate the disconnect between regional economic trajectories.

All 11 sectors of the S&P 500 were positive for the month, as Consumer Discretionary, Financials, and Energy led the way, returning 12.8%, 10.3%, and 7.7%, respectively. Utilities, Materials, and Health Care were the laggards for the month, returning 3.7%, 1.5%, and 0.3%, respectively.  

At a factor level, the strongest returns for the monthly came from Enhanced Value, High Beta, and Momentum, returning 8.4%, 7.5%, and 6.6%, respectively. 

Europe & International Markets

International markets outside the US did not share in the optimism and growth as returns across the euro region and emerging markets showed weakness during November. Analysts and Investors watched as the euro tumbled and sent stocks lower as a second Trump administration weighed on equity outlooks. The western developed markets have seen stocks fall as traders try to price in the likely impacts of proposed tariffs on exporters. The Stoxx Europe 600 is only up slightly on the year-to-date and is at the widest margin on record when compared to the S&P 500. According to an analyst from Barclays, “A Trump premium has opened between the two markets…and investors fear that Europe will be in the front line of the coming trade war.”

Lower growth prospects have led economists to reduce their 2025 estimates for Germany and France, downgrading industrial production forecasts for both economies. The outlook for business investment growth for the Eurozone continues to drop as the expectations for the European Central Bank key lending rate are showing roughly 125 basis points of cuts between now and the end of 2025.

The president-elect has threatened 60% tariffs on Chinese Imports to the US and roughly 10 – 20% blanket tariffs on all other trade partners. European manufacturers are bracing for a double impact of higher export costs and a potential for China to flood the region with cheap imports.

Three of the four top countries within the Euro Stoxx 600 index were negative for the month, with the lone positive return coming from the United Kingdom, finishing the month of November up 1.3%. The three other heavily represented countries were down for the month, with Germany, Switzerland, and France returning at 0.4%, 1.9%, and 4.3%, respectively.

China

Manufacturing activity expanded for the second month in China as the Caixin manufacturing purchase managers index rose to 51.5, the highest level since June. Chinese exports have helped drive the country's uneven recovery, but recent front-loading activity may be a driver of the expansion and is unlikely to continue. Michelle Lam, a Greater China economist at Societe Generale SA, noted, "Front-loading may continue to support manufacturing activities for a couple of months until tariffs materialize, which would take place fairly quickly given the mechanism in place in the US.” 

Outside the manufacturing sector, there is still concern that the economy faces structural and cyclical pressures. Employment remains in contraction for the third month, and stimulus effects have yet to trickle down to the labor market.

The US Consumer Continues to Drive the Economy

The Bureau of Economic Analysis showed at the end of the month that gross domestic product (GDP) increased at a 2.8% annualized pace in the third quarter, propelled by consumer spending that advanced by 3.5%, the most this year. The outlook for high-income households looks good, and a promise from Trump that tax cuts enacted under his first administration will be extended has provided a tailwind to high earners continuing to spend. Americans who have benefitted from a wealth effect from asset-price gains and higher earnings are increasingly a more significant part of US consumer spending.

Bitcoin emerged as a major beneficiary of the recent election, nearing $100,000 by month’s end. The price surge, despite recent volatility, reflects optimism over regulatory clarity and a pro-crypto administration. The nomination of Paul Atkins as SEC Chair, a crypto advocate, and discussions about creating a Strategic Bitcoin Reserve funded by reallocating Federal Reserve gold have further boosted sentiment.

Looking Ahead

As we approach the end of 2024, market participants anticipate a 25-basis-point reduction in the federal funds rate during the Federal Open Market Committee (FOMC) meeting on December 18, potentially bringing the target range to 4.25%–4.50%. This expectation is bolstered by Federal Reserve Governor Christopher Waller's recent remarks indicating a leaning toward a December rate cut, contingent upon forthcoming economic data.

• Potential Volatility: In the equity markets, the S&P 500 has demonstrated resilience, with analysts forecasting an 11.9% year-over-year earnings growth rate for Q4 2024. However, concerns about elevated valuations persist, particularly given the index's significant concentration in a handful of high-performing technology stocks. This concentration has prompted discussions about the sustainability of current market levels and the potential for increased volatility.

• Here Comes Santa Claus: December has historically been a strong month for equities, with the S&P 500 averaging a 1.3% gain since 1928, finishing in the green 74% of the time, and the Dow Jones Industrial Average returning 1.3% over the last 50 years. This phenomenon, often called the "Santa Claus rally," typically concentrates gains in the latter half of the month.

• Alpha Through Diversification: With global equity valuations stretched and concentrated in a few sectors, 2025 may see opportunities shift toward broader market participation. Goldman Sachs emphasizes that diversification will be key, with pairwise correlations across equities falling, potentially enhancing stock selection opportunities for active managers. As the market transitions from valuation-driven to earnings-driven returns, identifying sectors and geographies poised for growth could yield positive alpha.

NOTE: Starting in January 2025, we will transition to a quarterly commentary format, with the first covering Q4 2024. This change allows us to provide deeper insights into market trends and developments.

Sources:

1. Data from Morningstar. Returns over one year are annualized.  

DISCLOSURES:

Past performance is no guarantee of future returns.

The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgement in determining whether investments are appropriate for clients.

The information here is not intended to constitute an investment recommendation or advice.

Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations for the respective strategies are shown gross of fees. If fees were included returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Also, since the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.

This material has been prepared for information and educational purposes and should not be construed as a solicitation for the purchase or sell of any investment. The content is developed from sources believed to be reliable. This information is not intended to be investment, legal or tax advice. Investing involves risk, including the loss of principal. No investment strategy can guarantee a profit or protect against loss in a period of declining values.