Stocks fell over the holiday shortened week but rose the first two trading days of the new year, led by last year’s leaders, Information Technology and Communication Services. These two were joined by Energy, one of the laggards during 2024, which we believe will have a much better relative year. Nonetheless, given the light trading volume over the holidays, we would not draw many if any conclusions from the last couple of weeks. For all intents and purposes 2025 will kick off Monday, January 6th.
· Although we do not expect a third consecutive twenty-plus percent positive year for equity investors, absent a black swan event, we are bullish as, although perhaps fully valued for the short term, the leading sectors still have positive price and earnings momentum. In addition, we believe that the revolution in Artificial Intelligence (AI) is in the middle innings at the latest so there’s still a lot of room for opportunity. Any meaningful, actionable pullback should be viewed as a chance to add to positions where appropriate.
· As for fixed income, we believe that absent a policy mistake from the Federal Reserve, we are near the bottom of the disinflationary (falling inflation) cycle and therefore expect interest rates to remain rangebound over the near- to intermediate-term with the yield curve steepening as the economy remains resilient. In fact, wage growth outpaced inflation during 2024 (Sources: Bloomberg, Edwar Jones). That said, we are keeping a keen eye on the impact of President Elect Trump’s economic policies. Once again, we can’t stress enough that 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.”
· The Minutes from the December Meeting of the Federal Reserve’s Open Market Committee (FOMC) will be released Wednesday and although quite often good for putting you to sleep, these might include how spirited the debate over whether or not to cut interest rates might have been as it may provide insight into future Fed action or inaction. In the end, the FOMC ended cutting rates by 0.25%.
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “inching up to just shy of seven percent, mortgage rates reached their highest point in nearly six months. Compared to this time last year, rates are elevated and the market’s affordability headwinds persist. However, buyers appear to be more inclined to get off the sidelines as pending home sales rise.” (Sources, Federal Home Loan Mortgage Corporation, National Association of Realtors)
"It’s The Economy…”
· The Institute for Supply Management’s Composite Index of Manufacturing Sector Activity rose to 49.3 during December as compared to 48.4 in November. Generally speaking, “a reading above 50% indicates that the manufacturing economy is expanding; below 50% indicates one in contraction.” The recent high was in March 2024 when the index stood at 50.3.
According to Timothy R. Fiore, Chair of the Institute of Supply Management (ISM) Manufacturing Business Survey Committee, “after breaking a 16-month streak of contraction by expanding in March, the manufacturing sector has contracted for the last nine months.” (Source, Institute for Supply Management)
· Initial Claims for Unemployment Benefits for the week ending December 28th fell 9,000 to 211,000 from 220,000 the prior week, which was revised higher by 1,000. The four-week rolling average fell 3,500 to 223,250 from 226,750, which was revised up by 250. Keep in mind that the labor market is viewed as weakening once this number surpasses 250,000 on a regular basis. (Source, U.S. Department of Labor)
· U.S. Construction Spending was unchanged during November, after rising 0.5% during October. Over the past year Construction Spending has risen 3.0%. Private Construction Spending increased 0.1% in November (2.5% y/y), after rising 0.6% during October. Private Residential Construction Spending rose 0.1% during November (1.4% y/y), following a increase of 1.4% in October. Private Nonresidential Construction Spending slipped fractionally during November (1.7% y/y). Lastly, spending on Public Projects fell 0.1% during November (4.6% y/y), identical to October. (Source, U.S. Census Bureau)
Upcoming Economic Reports scheduled to be released this week include the following: on Monday, November Factory Orders; on Tuesday, November Balance of Trade, the Job Openings and Labor Turnover Survey (JOLTS) and the ISM Services Report; on Wednesday, November Consumer Credit; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits and November Wholesale Inventories; and, on Friday, December Non-Farm Payroll Report, November Unemployment Rate and Preliminary January Consumer Sentiment.
There is a Trickle of Companies Scheduled to Report Earnings This Coming Week. These include Commercial Metals (CMC), Cal-Maine Foods (CALM), Constellation Brands (STZ), KB Home (KBH), Walgreen Boots (WBA), and Delta Airlines (DAL).
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.”
