Good morning. Prior to diving into the recap of the financial markets, we want to take a moment and thank our clients for the trust and confidence they have placed in Fagan Associates this past year and wish all a happy, healthy and prosperous 2025.
Most major stock indexes rose fractionally this past week and are within two to three percent of all-time highs notched earlier this month. The not so newsworthy news of this holiday shortened week is the fact that all eleven sectors rose or fell within one percent of the prior week’s closing level. We would pay little attention to any volatility, should it occur this coming week, as holiday volume will remain light. For all intents and purposes 2025 will kick off a week from Monday, January 6th.
· After cutting interest rates because of the economic slowdown resulting from the pandemic in 2020 and then arguably leaving them too low for too long, on March 16, 2022, the Federal Reserve embarked on a path of rate hikes which would eventually push the Federal Funds up to 5.50% from 0%. However, at the conclusion of its regularly scheduled two-day policy meeting on September 18, 2024, the Fed again reversed course and cut rates by 0.50%. This was followed by rate reductions of 0.25% at each of their next two meetings, November 7 and December 18.
The paragraph immediately above is noted as it provides framework to the fact that despite the cut in the Fed Funds rate, the interest paid on the 10-Year U.S. Treasury Note rose from 3.70% to 4.62%, a 25% increase. In our opinion, the cause of this is a result of a continuation of the better-than-expected economic data as well as a rising concern that modest inflation will be stickier than previously anticipated. This is something that the financial markets will watch closely in 2025 as, should they continue to increase, rising interest rates will eventually become a headwind to stocks.
· Sentiment/volatility will most likely remain until President-Elect Trump a) takes office and b) investors receive enough details regarding his economic agenda, to include tariffs and reducing the size of government. As we have stated repeatedly, the Trump Administration will be one that has a broader range of potential outcomes as compared to that of a traditional politician. Even though his agenda might ultimately prove successful it may come with growing pains as he bucks the system.
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates increased for the second straight week, rebounding after a decline from earlier this month. While a slight improvement in new and existing home sales is encouraging, the market remains plagued by an overwhelming undersupply of homes. A strong economy can help build momentum heading into the new year and potentially boost purchase activity.” (Sources, Federal Home Loan Mortgage Corporation, National Association of Realtors)
"It’s The Economy…”
· The Census Bureau reported that Sales of New Homes rose 37,000 during November to a Seasonally Adjusted Annualized Rate (SAAR) of 664,000 from 627,000 during October (8.7% y/y). Sales of New Homes have fallen by 35.60% from their peak of 1.031 million in October 2020 and 48.08% from the peak in July 2005 of 1,279,000 units. According to Haver Analytics, “the median sales price of a new home fell 5.4% (-6.3% y/y) to $402,600 in November after a 1.8% increase to $425,600 in October, registering the first m/m fall since August and the lowest level since February 2022. The median sales price had fallen 12.5% since its October 2022 peak of $460,300. The average sales price of a new home dropped 7.7% (-0.9% y/y) to $484,800 in November, the lowest level since August, following a 4.9% rise to $525,400 in October. The average price was 10.4% below a high of $541,200 in July 2022.” “The median number of months a new home stayed on the market increased to 2.6 months in November, the highest since March, after slipping to 2.4 months in October. The latest reading was up from the record low of 1.5 months in both September and October of 2022 but down from 2.7 months in November 2023 and a high of 5.1 months in March 2021.” (Source, U.S. Census Bureau)
· The Conference Board’s Consumer Confidence Index fell to 104.7 (-3.1% y/y) during December from 109.6 in October, revised from 112.8. The present situation index fell to 140.2 in December from 141.4 (-4.8% y/y) while the expectations component fell to 81.1 during December from 93.7 during November (-1.0% y/y). According to Dana M. Peterson, Chief Economist at The Conference Board, “the recent rebound in consumer confidence was not sustained in December, as the Index dropped back to the middle of the range that has prevailed over the past two years. While weaker consumer assessments of the present situation and expectations contributed to the decline, the expectations component saw the sharpest drop.” (Source, The Conference Board)
Upcoming Economic Reports scheduled to be released this week include the following: on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits and November Construction Spending.
The Current Quarterly Earnings Season has wound down to a meaningless trickle.
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
