As the data below indicates, the economy remains on firm footing as is represented by the first revision to Gross Domestic Product, the labor market continues to chug along and inflation is trending downward. The only fly in the ointment is the housing market which remains in the doldrums, dragged down by challenging interest rates and high prices. Given this attractive scenario as well as the tailwind provided by seasonality, all major indexes sit at or near record highs. We can’t see this changing much before the year-end, but caution investors that if history is any guide, 2025 will prove more challenging. We’ve begun to prepare for this by making certain that portfolios are well-diversified and in accordance with their objectives.
· The Federal Open Market Committee (FOMC) released the minutes from the November meeting and noted that “in discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time.”
· Driven by ample supply as well as waning global demand (see China), at $3.04, prices at the pump nationally are at their lowest level in nearly a year. Given the likelihood of increasing domestic production even more, this favorable environment is likely to continue into the foreseeable future.
· Interest rates on U.S. Treasuries fell this past week in response to favorable inflation data along with the nomination of Scott Bessent as Treasury Secretary. In our opinion, Bessent’s nomination to this post, one that is vital to the U.S. economy and financial markets is a sound one as most view him as one that would favor a staged in approach to tariffs and a reasonable hawk on the debt/deficit.
· The Russell 2000 (second and third thousand publicly traded companies domiciled in the U.S.) closed at 2,442.03 this past Tuesday, a mere 0.71 points away from its last record high closing set November 8, 2021. Additionally, the Dow Jones Utility Average set its first record closing high since April 6, 2022. Both are indicative of a rally that is broadening out – a sign of a healthy market.
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “the 30-year fixed-rate mortgage moved down this week, but not by much. Rates have been relatively flat over the last few weeks as the market waits for more clarity on specific economic policies. Potential homebuyers are also waiting on the sidelines, causing demand to be lackluster. Despite the low sales activity, inventory has only modestly improved and remains dramatically undersupplied.” (Source, Federal Home Loan Mortgage Corporation)
It’s The Economy…”
· The economy continues to chug along as according to the Commerce Department, Third Quarter Gross Domestic Product (first revision) rose at an annualized rate of 2.8%, unrevised from the first estimate, but down from 3.0% during Q2 and as compared to 2.7% y/y. Final Sales to Domestic Purchasers rose at an unrevised annualized rate of 3.5% during Q3, after rising 2.8% during Q2 and versus 3.1% y/y. Government Spending (Government Consumption Expenditures and Gross Investment) surged at an unrevised annualized rate of 5.0%, up from 3.1% during the previous quarter and as compared to 3.4% y/y. The Personal Consumption Expenditures (PCE Price Index) rose at an unrevised annualized rate (SAAR) of 1.5% during Q3 (2.3% y/y) versus 2.5% during Q2. (Source, U.S. Bureau of Economic Analysis)
· The Bureau of Economic Analysis reported that Personal Income rose 0.6% during October (3.5% y/y), after rising 0.3% in September. Adjusted for inflation, Disposable Personal Income rose 0.4% during October (2.7% y/y), after rising 0.1% in September. The Wage & Salary Component rose 0.5% in October (5.6% y/y), after rising 0.4% in September. Personal Spending (PCE), representing approximately 70% of economic activity rose 0.4% during October (5.4% y/y) after rising 0.6% during September. The consensus was for the PCE to rise 0.4%. Personal Savings (Disposable Personal Income Less Outlays) rose to an annualized rate of 4.4% during October from 4.1% during September. The PCE Chain Price Index rose 0.2% in October (2.3% y/y) which was identical to the increase during September. (Source, Bureau of Economic Analysis)
· Initial Claims for Unemployment Benefits for the week ending November 23rd fell 2,000 to 213,000 from 215,000 the prior week, which was revised higher by 2,000. The four-week rolling average fell 1,250 to 217,000 from 218,250, which was revised 500 higher. Continuing claims for the week ending November 16th rose 9,000 to 1,907,000 from 1,898,000 the prior week, which was revised lower by 10,000. The continuing claims four-week average rose 13,000 to 1,890,250 from 1,876,750 and in so doing marked its highest level since November 27, 2021. (Source, U.S. Department of Labor)
· The Census Bureau reported that Sales of New Homes plunged 128,000 during October to a Seasonally Adjusted Annualized Rate (SAAR) of 610,000 from 738,000 during September (-9.4% y/y). Sales of New Homes have fallen by 40.83% from their peak of 1.031 million in October 2020 and 52.31% from the peak in July 2005 of 1,279,000 units. According to Haver Analytics, “the median sales price of a new home rose 2.5% (4.7% y/y) to $437,300 in October after a rebound to $426,800 in September registering the third m/m rise in four months to the highest level since August 2023. The median sales price, however, had fallen 5.0% since its October 2022 peak of $460,300. The average sales price of a new home advanced 7.0% (9.4% y/y) to a record-high $545,800 in October, up for the third month in four, on top of a 6.9% September gain to $509,900. The average price was 0.8% above a high of $541,200 in July 2022. These sales prices are not seasonally adjusted.” “The number of unsold new homes on the market rose 2.1% (8.8% y/y) to 481,000 in October, the highest level since January 2008, after holding steady m/m at 471,000 in September.” (Source, U.S. Census Bureau)
Upcoming Economic Reports scheduled to be released this week include the following: on Monday, October Construction Spending and the ISM Manufacturing Index; on Tuesday, the October Job Openings and Labor Turnover Survey (JOLTS); on Wednesday, October Orders for Durable Goods, October Factory Orders and the ISM Services Index; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits and the October Balance of Trade Report; and, on Friday, November Non-Farm Payrolls, November Unemployment Rate, the preliminary report on December Consumer Sentiment (Univ of Michigan) and October Consumer Credit.
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 – Okta (OKTA), Salesforce (CRM), Campbell Soup (CPB), Dollar Tree (DLTR), Dollar General (DG) and Ulta Beauty (ULTA).
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.”
