Stock Market

U.S. stock markets saw lighter activity during a shortened session following Thanksgiving, but the major indexes finished a strong month on an up-beat. The S&P 500 and Dow Jones Industrial Average closed the last trading day of the month at record highs, with the Dow briefly surpassing 45,000 intraday before settling slightly lower.

For the month of November, the stock market’s three major indexes performed as follows:

The Dow 7.5%
S&P 500 5%
Nasdaq Composite 6%

These advances capped off a winning week and month, driven by momentum from the postelection rally following President-elect Donald Trump’s victory. In fact, November marked the best month of 2024 for both the Dow and the S&P 500.

 Employment

In October, total nonfarm payroll employment saw little movement, increasing by only 12,000 new hires, while the unemployment rate held steady at 4.1%, according to the U.S. Bureau of Labor Statistics.

Despite a slight upward trend in health care and government jobs, the labor market faced setbacks: temporary help services experienced job losses, and manufacturing employment declined due to ongoing strike activity.

The modest increase in job growth fell short of expectations; economists polled by Bloomberg had forecasted a gain of around 100,000 new jobs, a figure well below the prior month’s downwardly revised addition of 223,000 jobs. While the labor market data was also affected by recent hurricanes and the Boeing strike, the stable unemployment rate reflects an underlying resilience in the U.S. job market.

Inflation

In October, inflation rose in line with Wall Street expectations, according to the latest data from the Bureau of Labor Statistics. The consumer price index (CPI), a measure of the cost of various goods and services, went up by 0.2% for the month, pushing the annual inflation rate to 2.6%, a slight increase from September’s 2.4%. This figure matched the Dow Jones estimates.

A significant portion of the overall CPI rise came from shelter costs, which went up by 0.4% and represented more than half of the total increase. While energy prices showed no change compared to a 1.9% decline in September, the food index inched up by 0.2%. Other notable gains included used cars and trucks, airline fares, medical care, and recreation. Conversely, indexes for apparel, communication, and household furnishings saw slight decreases.

The core CPI, which excludes volatile food and energy prices, saw a more notable increase of 0.3% for the month and 3.3% year-over-year, also aligning with forecasts. Energy prices remained stable in October after previous declines, while food prices rose 0.2% for the month and 2.1% over the year.

Likewise, the Fed’s preferred measure of Inflation ticked higher in October, with the personal consumption expenditures (PCE) price index rising 0.2% for the month and showing a 12-month inflation rate of 2.3%, according to the Commerce Department.

Both figures met Dow Jones forecasts. The Federal Reserve uses PCE as its preferred inflation gauge, targeting a 2% annual rate. However, PCE inflation has exceeded that threshold since March 2021, peaking at 7.2% in June 2022.

GDP

Real GDP grew at an annual rate of 2.8% in Q3 2024, according to the U.S. Bureau of Economic Analysis’ second estimate, consistent with the initial advance estimate. This follows a 3.0% increase in Q2. The updated Q3 estimate reflects more complete data, with upward revisions to private inventory investment and nonresidential fixed investment but downward adjustments to exports and consumer spending. Imports, a subtraction in GDP calculations, were also revised downward. Growth was primarily driven by consumer spending, exports, federal government spending, and nonresidential fixed investment, despite an increase in imports.

The deceleration in Q3 GDP compared to Q2 largely stemmed from a downturn in private inventory investment and a sharper decline in residential fixed investment. These were partially offset by stronger gains in exports, consumer spending, and federal government expenditures, along with an acceleration in imports. The adjustments highlight the shifting dynamics of economic activity during the quarter.

The Fed and Rates

At its November 7^th meeting, the Federal Open Market Committee (FOMC) reduced its benchmark overnight borrowing rate by 25 basis points, setting the new target range at 4.50%-4.75%.

This marks the second consecutive rate cut, following September’s larger half-point reduction, as the Federal Reserve adjusts its policy stance to better align with current economic conditions.

Unlike September’s decision, which included a dissenting vote, this move was approved unanimously, signaling cohesive support among Fed officials. The Fed’s strategy highlights a shift towards balancing its dual mandates: curbing inflation while maintaining support for employment.

The post-meeting statement from the FOMC indicated nuanced changes in its economic outlook. The Committee now sees “the risks to achieving its employment and inflation goals as roughly in balance,” a shift from its earlier “greater confidence” expressed in September.

It acknowledged some easing in labor market conditions, noting that while unemployment has edged up, it remains relatively low. Despite this softening, the economy is described as continuing to expand at a “solid pace.” These developments suggest that while inflation remains a concern, supporting job growth is taking on more importance in policy discussions.

On Bulls and Bears

Bull markets, defined by a 20% rise from a recent low, are often longer than bear markets, with the average bull market lasting about 3.8 years based on data since 1932. Bull markets tend to deliver significant gains, with the average rising by around 112%.

Though bear markets can be daunting, they historically occur less frequently and last shorter periods, making them less impactful on long-term investment strategies. The average bear market since 1928 has lasted just 9.6 months – 289 days – and deliver just 36% in market losses.

Understanding these cycles is crucial for disciplined, patient investors who focus on long-term growth.

Real Estate and Mortgage

With the end of the year upon us, it’s time for predictions and forecasts (many of which will never come true!), including in the housing market.

Goldman Sachs Research predicts U.S. home prices will rise as the Federal Reserve lowers interest rates amid a strong economy. Analysts have adjusted their home price appreciation forecasts to 4.5% for 2024 and 4.4% for 2025, up from April’s projections of 4.2% and 3.2%.

Mortgage rates are projected to drop below 6% by 2025, though uncertainty remains. Predictions in early 2023 anticipated rates around 4.5% by late 2024, which never materialized.

However, rates are expected to moderate in 2025 and 2026, particularly if economic growth slows. Here are some more key mortgage rate predictions from credible institutions:

• Fannie Mae:  Rates will decline to 5.7% in 2025.
• Mortgage Bankers Association (MBA):  Rates will drop to 5.9% by Q3 2025, maintaining that level through early 2026.
• National Association of Home Builders (NAHB):  Rates will average 5.94% in 2025 and decline further to 5.69% in 2026.

Notable Quotes

 “Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.”
– Johann Wolfgang von Goethe