Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 5996, representing an increase of 4.69%, while the Russell Midcap Index moved 5.68% last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 8.61% over the week. As developed international equity performance and emerging markets were higher, returning 0.08% and 1.22%, respectively. Finally, the 10-year U.S. Treasury yield moved lower, closing the week at 4.30%.
On Veterans Day, we would like to start this update by remembering and expressing our sincere gratitude to the men and women who have bravely served our country.
Last week’s news cycle was dominated by the election and the Federal Reserve’s November meeting. Throughout the remainder of this update, we will provide our thoughts about the market impact of both events.
Following Donald Trump’s victory last week, equity markets have rallied significantly, with the Dow Jones currently at an all-time high. Investors generally dislike uncertainty, and the certainty of Trump’s victory, which was projected and then confirmed much sooner than many expected, served as an immediate tailwind for the markets.
On the other hand, the 10-year U.S. Treasury yield surged initially higher by 20 Bp (0.20%) after Trump’s victory as investors weighed the inflationary impact of potential tariffs may be imposed. It is possible that Trump’s “bark may be worse than his bite” on the tariffs front, as the Trump Administration may use tariffs as a bargaining chip in trade negotiations with other countries. Should tariffs be imposed, however, on certain countries and certain goods from those countries, it remains to be seen how inflationary those tariffs would be and the timeframe for that inflationary impact. The initial spike in yields proved to be a knee-jerk reaction predominantly, and yields retreated lower by the end of the week.
There was very little uncertainty concerning the Federal Reserve’s meeting this past week. As widely expected, the FOMC reduced the Federal Funds Target Rate by 25 Bp (0.25%) to a range of 4.50% to 4.75%. Chairman Powell made very few additional headlines during the press conference following the meeting other than reiterating that the Fed will remain “data dependent” going forward. We are not entirely convinced that the Fed will cut interest rates again following their final meeting of the year in December, and we believe that they may adopt a more gradual pace to interest rate cuts next year.
The market’s response last week can serve as yet another reminder of the dangers of trying to time the market by “sitting on the sidelines until after the election is over” in this case. It remains our view that time in the market is often more important than trying to time the market, provided, of course, that your portfolio is being managed consistent with your tolerance for risk, investment timeframe, and overall goals.
However, it is also important to appreciate that despite the strong post-election market rally, more short-term bouts of volatility are possible ahead given how far the market has rallied over the past two years, the low level of downside volatility year-to-date, the new policy uncertainty of the upcoming balance of power shift in Washington, and the unknown path forward of the Federal Reserve.
For all of these reasons, now is the ideal time to review your portfolio of investments. The next four years will undoubtedly look very different than the prior four years, and the next decade will look very different than the last decade. Hence, a thorough review of your portfolio holdings may be appropriate to help ensure that you are positioned accordingly to best meet your growth and income objectives in the days, months, and years ahead.
Best wishes for the week ahead!
Equity and Fixed Income Index returns sourced from Bloomberg on 11/8/24. Federal Reserve data is sourced from The Federal Reserve. Economic Calendar Data from Econoday as of 11/8/24. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.