Market Note – December 3, 2024

By Hightower Great Lakes on December 3, 2024

Post-Turkey Week

A shortened week for the markets, last week was mostly quiet on the economic data front. The Federal Open Market Committee (FOMC) minutes from the November policy meeting showed that the committee remains constructive on the interest rate path.

To quote, the minutes stated that “Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually.”[1]

The committee noted that as long as inflation continues to trend towards 2%, with the labor market staying near maximum employment, it would be appropriate to continue lowering policy to a more neutral rate, although there are differing views on what is considered the neutral rate (the interest rate at which monetary policy is considered neither stimulative nor restrictive to economic growth).

The FOMC meets on December 17^th and 18^th for the final policy decision of 2024. Markets are projecting a 70% chance for a 25-basis point cut, and a 30% chance for no rate cut.[2]

Last Wednesday we received the second preliminary reading of Q3 U.S. GDP, which came in line with the first reading of 2.8% annualized growth q/q.

The largest driver of this growth was consumer spending, which grew 3.5% in the third quarter – the most this year.[3] The U.S. consumer remains resilient and is one of our favorite long-term themes.

We also received an updated reading on the Fed’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) Index, last Wednesday.

In October, PCE rose 2.3% y/y and core PCE rose 2.8% y/y, both in line with expectations. Both data prints were above September’s readings and may have the Fed questioning if inflation is continuing its decline to 2%.

As we have stated many times, we would prefer higher growth and higher inflation to the opposite, being lower growth and lower inflation. A tad higher inflation (2.5-3%) with above-trend growth is better for corporate profits than lower inflation (1.5-2%) and a slowing economy.

Chart 1: CPI and PCE Are Both Under 3%. Will the Fed Claim Victory on Inflation?[4]

Looking Ahead

Markets and investors will be receiving a surplus of data this week. U.S. PMI Manufacturing data for November came in above expectations at 49.7.

Slightly under 50, manufacturing has been in contraction (i.e., when a reading is below 50) since March 2024, although $2 trillion in infrastructure spending is still making its way through the economy.

Wednesday, ISM Services will likely remain in expansion (i.e., when a reading is above 50). Recent readings have been near 60, showing an expanding services sector.

Consumers for much of the past couple of years have focused spending on the services economy rather than goods, and that is likely to have remained in November.

Lastly, on Friday, November’s non-farm payroll report will provide insights into the labor market. Estimates are for 177K new jobs in November with a 4.2% unemployment rate and 3.9% wage growth.

Fixed Income

U.S. Treasury yields fell sharply during Thanksgiving week as investors welcomed the news of Trump’s perceived market-friendly Treasury Secretary nominee, Scott Bessent.

The 2-, 10-, & 30-year yields fell 22, 23, & 23 bps, respectively. Investment Grade spreads finished the week tighter by 4 bps to +116 while the High Yield spread widened by 5 bps to +309.

U.S. credit ratings deteriorated for the third week in a row as the main rating agencies issued 27 downgrades and 25 upgrades. Boosted by the strong movement in Treasuries, tax-exempt yields fell last week by 5-15 bps across the curve.

The Week Ahead

Earnings – Tuesday: ADM, CRM; Wednesday: CPB, DLTR, HRL, SNPS; Thursday: BF.B, COO, DG, HPE, KR, LULU, ULTA.

Economics – Monday: ISM Manufacturing, Construction Spending; Tuesday: JOLTS Job Openings; Wednesday: ADP Employment Survey, ISM Services, Durable Orders, Factory Orders; Thursday: Initial Claims, Continuing Jobless Claims; Friday: Non-Farm Payrolls, Unemployment Rate, Hourly Earnings.

Return for Selected Indices^[5]

Click here to read last week’s Market Note (11/26).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

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This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: CNBC. As of November 26, 2024.

[2] Source: CME Group. As of November 27, 2024.

[3] Source: Bloomberg. As of November 27, 2024.

[4] Source: FactSet. As of November 27, 2024.

[5] Source: Bloomberg. As of December 2, 2024.