November’s post-election rally propelled the S&P 500 to record highs amid investor optimism about the incoming administration’s tax cuts, trade policies, deregulation, and fiscal agenda, though concerns about inflation, fiscal deficits, and Federal Reserve loom.
November 2024 Monthly Market Commentary
- The S&P 500 index increased 6.0% in November but underperformed the Russell 2000 Index’s 11.1% return. All eleven S&P 500 sectors traded higher, with Consumer Discretionary and Financials gaining more than 10%. In contrast, defensive sectors, such as Health Care, Utilities, and Consumer Staples, underperformed the S&P 500.
- Corporate investment-grade bonds increased 1.8% as Treasury yields declined, marginally outperforming corporate high-yield’s 1.6% total return.
- International stocks continued to underperform US and traded lower for a second consecutive month. The MSCI EAFE developed market stock index fell 0.3%, while the MSCI Emerging Market Index declined 2.7%.
Markets Respond to Trump Election Win with New All-Time Highs
Stocks finished October lower as investors navigated Q3 earnings, the upcoming election, and uncertain Federal Reserve policy. The S&P 500 posted its first monthly loss since April, lowering its year-to-date return to just under 21%. Large-cap stocks slightly outperformed small-cap stocks, but most investment factors produced similar returns.
In the bond market yields rose sharply and bonds traded lower for the first time in six months. The bond market volatility arose after commentary from the Fed suggested it may not cut interest rates as much as investors previously expected. This renewed rate uncertainty, combined with concerns about fiscal spending, drove Treasury yields higher. In our view much of the movement is tied to markets wrestling with the likelihood of continued high government spending regardless of election outcome.
Treasury Yields Spike After the Fed’s September Rate Cut
Following Trump’s victory in the 2024 US Presidential Election (which turned out to be more decisive than many expected) markets rallied to new all-time highs as investors began to digest the implications of the incoming administration’s policy agenda. The S&P 500 gained 6.0% (its biggest monthly return since November 2023), broke above 6,000 (a key level), and set a new all-time high. However, smaller companies took center stage as the market rally broadened across sectors and market cap, with the Russell 2000 surging 11.1% to set a record high.
In the bond market, Treasury yields rose after the election due to concerns about increased fiscal spending, tax cuts, and large fiscal deficits under the next administration. However, later in the month, yields reversed lower, and bonds posted positive returns.
Equally as important as the Presidential Election outcome is Republicans taking control of the Senate and House in January. With Republicans now having unified control of the government, the focus shifts to the potential market and economic impacts (more on this below).
Key Policies to Watch
With the election outcome decided investor focus is now on two key areas of Republican policy: tax policy and trade.
- Taxes: Trump is expected to prioritize extending the tax cuts passed during his first term. In our view this will likely provide significant tailwinds for equity markets as it helps stimulate economic growth and boost corporate profits, although it could widen the fiscal deficit.
- Trade: Trump has been vocal about his plans to use tariffs to advance US interests in international affairs and renegotiate trade deals. While these policies may ultimately support US companies and manufacturing, in the near term any imposed tariffs could disrupt supply chains, slow economic growth, squeeze profit margins, and most importantly, drive up inflation (as costs as passed along to the consumer).
Other critical policies include immigration and deregulation. As noted above we are concerned about policy impact on inflation, especially given the combination of tariffs, stricter immigration policies, and expansionary fiscal policy. If these policies do drive inflation higher the Federal Reserve might need to keep interest rates higher for longer.
Elsewhere, there is an expectation that deregulation could create new growth opportunities in the financial and energy sectors, while relaxed antitrust enforcement could lead to more mergers and acquisitions. Economic growth and corporate earnings will remain important long-term drivers, but in the short term, markets may be sensitive to shifting policy headlines as the new administration takes office.
ENDNOTES
Disclosures
This commentary reflects the personal opinions, viewpoints and analyses of the author providing such comments, and should not be regarded as a description of advisory services provided by Defiant Capital Group or performance returns of any Defiant Capital Group client. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Defiant Capital Group manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.
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A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
