Hey Folks, as we round out another record breaking year for US markets we are seeing valuations stretched a good deal.
Get my take on how we finish up this year and what 2025 may look like.
MARKET SOUND BITES:
Markets finished mixed in a week that saw the S&P, the Dow, and Nasdaq all continue to hit record highs, while the Russell declined after back-to-back weeks of outperformance versus its larger-cap peers. Geopolitical headlines through the first half of the week were largely dominated by French and South Korean politics while having limited impact on the US Markets. The current US Market Valuations relative to the rest of the world on a forward earnings basis are the higher its been since 1988. Thanks to the Republican sweep in Washington, the market is betting on lower taxes, deregulation sparking a merger boom, and fiscal stimulus pushing growth rates even higher. Since the elections, the S& P 500 index has gained 5.3%; the Nasdaq Composite, 7.6%; and the Dow Jones Industrial Average, 6%.
The week brought several closely watched economic reports, particularly related to labor market data, with much of the focus on Friday’s nonfarm payroll report. The Labor Department reported that the U.S. added a seasonally adjusted 227,000 jobs in November, which was slightly higher than consensus estimates. The report also noted that unemployment in November increased a tick to 4.2%. Major stock indexes opened higher on Friday as investors appeared to celebrate the final major labor market update ahead of the Fed’s December meeting. Earlier in the week, the Labor Department also reported the number of job openings in October increased to 7.74 million, up from September’s revised 7.37 million reading.
Other headlines during the week centered around comments from Fed officials as investors continued to look for clues regarding the pace of interest rate cuts. on Wednesday, Fed Chair “Boom Boom” Powell took a more neutral tone, stating, “The U.S. economy is in very good shape, and there’s no reason for that not to continue…. So the good news is that we can afford to be a little more cautious as we try to find neutral.”
U.S. Treasuries posted positive returns as yields entered Friday lower than where they ended the prior week. (Bond prices and yields move in opposite directions.) On Friday morning, yields across the curve fell further following the release of the Labor Department’s employment situation report.
Over in Europe, we saw in France, Prime Minister Michel Barnier’s minority government collapsed after Parliament backed a no-confidence vote regarding the proposed deficit-reducing budget for 2025. In the aftermath, the yield spread between German 10-year bunds and French 10-year Gov Debt—a measure of political and financial risk in the eurozone—widened at one point to 90 bps, the most since 2012. Key macroeconomic data in Europe continued to point to a slowing economy in Q4. Eurozone retail trade volumes declined in October by 0.5% sequentially, mainly due to drops in sales of non-food products and auto fuel. In Germany, manufacturing continued to struggle. Industrial output fell by 1.0% month over month while factory orders weakened 1.5% on the month. And in the UK, the BoE Governor Andrew Bailey signaled that he sees the potential for four interest rate cuts next year.
The latest commentary from the BoJ was balanced, reiterating that the merits of an interest rate hike will be judged on incoming data, with a specific mention of wage and economic growth. On the economic data front, average nominal wages grew 2.6% year on year in October, matching consensus and up from a revised 2.5% in September while household spending fell 1.3% year on year, shrinking for the 3rd straight month.
Chinese stocks rose on anticipation of fresh stimulus measures, along with resilient manufacturing data released the prior week. Factory activity expanded for the second straight month. The official manufacturing Purchasing Managers’ Index (PMI) rose to a better-than-expected 50.3 in November from 50.1 in October. The nonmanufacturing PMI, which measures construction and services activity, fell to a below-consensus 50 in November from October’s 50.2 reading. And on the Real Estate front, the value of new home sales by the country’s top 100 developers fell 6.9% in November from a year ago, reversing October’s 7.1% gain.
Enjoy this week’s round up
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
Warm Regards,
HPB
