Investors are heading into the last couple of meaningful trading weeks of the year on a high note as the S&P 500, Dow Jones Industrial Average, NASDAQ Composite and Total Market Index all closed at or within an earshot of record highs. Enthusiasm is high as is illustrated by bullish sentiment and yet, we believe the proverbial wall of worry that stocks scale still exists – that is after what may be a much-needed breather (see below). At this time, with inflation calming, interest rates within a trading range and seasonal tailwinds, any breather should prove a buying opportunity. However, as we have repeatedly within the Snapshot, we believe that as compared to (no brainer) “2025 will prove more challenging,” especially toward the latter third.
· As sure as the sun comes up in the morning…. According to the University of Michigan Consumer Sentiment Survey, sentiment among self-identified Republicans has surged to a level of 81.6 during December from 69.6 in November and in so doing marked its highest level since November 2020. No surprisingly, sentiment among self-identified Democrats plunged to 70.9 in December from 81.3 in November, its lowest level since September 2020.
Predictably, our advice if you are a Democrat is to get up, dust yourself off and keep investing in accordance with your long-term objectives. This would also have been our advice four years ago, when President Biden defeated President-elect Trump and four years prior when Trump was elected to his first term. How did that play out? From the close of election day 2016 through election day 2020, the S&P 500 returned an average of 12.06% per year and from election day 2020 through election day 2024, the S&P 500 returned an average of 14.44% per year. Both, not too shabby.
One more thing – don’t blame President elect Trump if stocks were to pull back over the near term as the S&P 500 has risen more than 54% over the past two years and by 2.72% since election day. A breather would be warranted and suggest further moves higher in the future as it would most likely curb the rising speculative enthusiasm. (See immediately below.)
· “Since 1928, the S&P 500 has average about one 10%+ correction per year (one every 346 days), but so far there have been no 10%+ corrections in 2024.” (Source, Bespoke, MFS)
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “this week, mortgage rates decreased to their lowest level in over a month. Despite just a modest drop in rates, consumers clearly have responded as purchase demand has noticeably improved. The responsiveness of prospective homebuyers to even small changes in rates illustrates that affordability headwinds persist.” (Source, Federal Home Loan Mortgage Corporation)
It’s The Economy…”
· Payrolls During November rose by 227,000, a bit above the consensus estimate of 223,000. Payroll numbers for the prior two months were revised to 36,000 and 255,000, from 12,000 and 223,000 during October and September, for a net gain of 56,000. The rolling three-month average rose to 172,667 from 123,000, a sign that the labor market may be strengthening. Payroll data was influenced by private education and health services (79,000), leisure and hospitality (53,000) and financial services (17,000). The Unemployment Rate ticked up to 4.2% during November from 4.1% one month prior. The Unemployment Rate had gotten as low as 3.4% in April 2023. The Labor Force Participation Rate fell to 62.5% during November from 62.6% in October, remaining well below the pre-COVID peak of 63.4% reached during February 2020 and below the average of 67.1% in 2000, indicating a longer-term structural problem with the labor market as each tenth of a percent represents approximately 168,570 workers. Average Hourly Earnings rose 0.37% or $0.13 to $35.61 during November from $35.48 one month prior and by $1.38 or 4.03% from $34.23 y/y. The manufacturing week rose to 40.7 hours in November from 40.6 hours in October and as compared to 40.5 hours y/y. Finally, the Average Duration of Unemployment (SAAR) rose to 23.7 weeks in November from 22.9 weeks in October, above the 19.9 weeks recorded one year ago. (Source, U.S. Department of Labor)
· The University of Michigan reported that the Preliminary December Reading of Consumer Sentiment rose to 74.0 from a final November 71.8 and from a preliminary November 73.0. According to the Survey of Consumers Director, Joanne Hsu, “Consumer sentiment improved for the fifth consecutive month, rising about 3% to its highest reading in seven months. A surge in buying conditions for durables led Current Economic Conditions to soar more than 20%. Rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases.” (Source, University of Michigan)
· Initial Claims for Unemployment Benefits for the week ending November 30th rose 9,000 to 224,000 from 215,000, the prior week, which was revised higher by 2,000. The four-week rolling average rose 750 to 218,250 from 217,500, which was revised 500 higher. We are posting this report as it is the timeliest look at the labor market. As a point of reference, a yellow light would flash should this number cross above 250,000. (Source, U.S. Department of Labor)
Upcoming Economic Reports scheduled to be released this week include the following: on Monday, October Wholesale Inventories; on Wednesday, November Retail Inflation as measured by the Consumer Price Index (CPI); on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits and November Wholesale Inflation as measured by the Producer Price Index (PPI); and, on Friday November Import and Export Price Index.
The Current Quarterly Earnings Season has begun to wind down as just a few stragglers remain. However, several companies of note are scheduled to report, including the following – MongoDB (MDB), Oracle (ORCL), Toll Brothers (TOL), AutoZone (AZO), Adobe (ADBE) and Costco Wholesale (COST).
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.”
