Trees don’t grow to the sky and given the run-up that the stock market has had leading up to and post-election, it is not surprising that it pulled back this past week. That said, we would suggest that it is not only normal profit-taking that has caused investors to rein in their enthusiasm a bit but after a level of uncertainty was removed as the election went off without a hitch, perhaps the stubborn inflation numbers, hawkish comments from Fed Chair Jerome Powell and three or four unorthodox department nominations has reinserted a bit of uncertainty back into the equation. Regarding the latter, opponents as well as proponents of President-elect Trump both realize that the potential range of economic outcomes from his administration is much wider than that of a traditional politician. As we are passengers on the plane Trump pilots, we are rooting for him.
· The yield on U.S. Treasuries continues to climb, a result of stronger than expected economic data (see below) as well as the a bit of uncertainty over exactly what President-elect Trump has planned for the economy. The interest paid on the benchmark 10-year Note has risen from 3.59% at the close on September 17, one day before the Fed cut rates by 0.50%, to 4.43% as the dust settled Friday. That may not sound like a lot, but for every $100,000 that’s an extra $840 paid out by the Treasury to investors. At some point in time, equity investors will take notice.
· It appears as if the stronger-than-anticipated pace of economic growth that will most likely occur under a Trump Administration as compared to a Harris one has resulted in rising demand for the dollar. Although the incoming President has expressed his disdain for a strong dollar, that may not be up to him as it will be his economic policies that will dictate where the dollar goes. In a nutshell, the anticipation of rising U.S. interest rates relative to other economies increases demand for the greenback. That, in turn, reduces the cost of imports and increases the cost of exports.
· As noted above, perhaps the equity markets are due for a breather. However, there is an adage on Wall Street, one put forth by famed investor Sir John Templeton long ago. It reads – “a rising market is born on pessimism, grows on skepticism, matures on optimism and dies on euphoria.” Despite our short-term cautiousness we would put forth to our readers that we are most likely still in the latter portion of the second stage, one of skepticism. One caveat – perhaps as it pertains to all facets of American life, including the financial markets, we are permanently entrenched in that phase.
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “after a six-week climb, rates have leveled off, but overall affordability continues to be an issue for potential homebuyers. Freddie Mac’s latest research shows that mortgage payments as compared to rents on the same houses are elevated relative to most of the last three decades.” (Source, Federal Home Loan Mortgage Corporation)
We don’t anticipate mortgage rates moving down appreciably from here until at least the inauguration as the broad potential outcomes of President-elect Trump’s economic agenda will most likely keep lenders and the Federal Reserve cautious.
It’s The Economy…”
· Retail Sales rose 0.4% higher during October (2.8% y/y), this after rising 0.8% in September. Spending on Motor Vehicles & Parts rose 1.6% during October (3.4% y/y) after rising 0.2% in September. Retail Sales Excluding Motor Vehicles & Parts rose 0.1% (2.7% y/y). A key component of this report, Restaurant & Drinking Place Sales rose 0.7% during October (4.3% y/y) after rising 1.0% in September. (Source, U.S. Census Bureau)
· Prices at the wholesale level as measured by the Producer Price Index rose 0.2% during October after edging up 0.1% during September. Over the past year the PPI has risen 2.4%, up from 1.8% y/y last month, but down from a peak rate of 11.7% during March 2023. Energy prices fell 0.3% during October (-8.6% y/y) after falling 2.7% during September. Food prices fell 0.2% during October after climbing 1.0% in September (2.7% y/y). Excluding food and energy, the core PPI rose 0.3% during October (3.1% y/y), after rising 0.2% in September. (Source, U.S. Bureau of Labor Statistics)
· Initial Claims for Unemployment Benefits for the week ending November 9th fell 4,000 to 217,000 from 221,000 the prior week, which went unrevised. The four-week rolling average fell 6,250 to 221,000 from 227,250, which also went unrevised. Continuing claims for the week ending November 2nd fell 11,000 to 1,873,000 from 1,884,000 the prior week, which was revised lower by 8,000. The continuing claims four-week average rose 1,000 to 1,874,500 from 1,873,500. (Source, U.S. Department of Labor)
· The Consumer Price Index, a measure of inflation at the retail level, rose 0.2% during October (2.6% y/y), after rising 0.2% the prior three months as well. The CPI has fallen from a y/y high of 9.1% during June 2022 but edged up from 2.5% y/y one month ago. Energy prices remained unchanged during October after falling 1.9% during September (-4.9% y/y). Food and beverage prices rose 0.2% during October (2.1% y/y) after rising 0.4% during September. The cost of shelter rose 0.4% during October (4.8% y/y) after rising 0.2% in September. Excluding food and energy, the core CPI rose 0.3%, its third consecutive such rise. Over the past year the core CPI has risen 3.6% y/y, well below the peak of 7.6% in February 2022 but up from 3.3% y/y one month prior. (Source, U.S. Bureau of Labor Statistics)
Upcoming Economic Reports scheduled to be released this week include the following: on Tuesday, October Housing Starts and Building Permits; on Thursday, October Sales of Existing Homes, October Index of Leading Economic Indicators (LEI) and the Weekly Report of Initial Claims for Unemployment; and, on Friday, November Consumer Sentiment.
The Current Quarterly Earnings Season has begun to wind down. However, several companies of note are scheduled to report, including the following – Lowe’s (LOW), Walmart (WMT), Nvidia (NVDA), Palo Alto Networks (PANW), Target (TGT), Deere (DE) and Intuit (INTU).
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.”
