Topic: Market Outlook

  • Stock Market Recap: November 2024

    Month in Review

    • Markets rallied sharply in November following the US elections, with US small cap stocks leading all markets higher at +10.97% for the month (Russell 2000 TR Index). This represents the first all-time high for small caps in three years.
    • US large cap stocks also participated, with the S&P 500 TR Index rising +5.87% in November. The gains for large cap growth and large cap value were about even for the month.
    • The strength of the US dollar weighed on international stocks, which fell slightly during the month (-0.57%, MSCI EAFE NR USD Index). After interest rates initially rose sharply, longer-term rates ultimately fell in November, resulting in a +1.06% gain for the bond market (Bloomberg Barclays Aggregate Bond TR Index).



    Heading into 2025

    This year has been another strong year for equity markets, particularly US large-cap stocks. For example, the S&P 500 has made over 50 all-time highs in 2024, which is on pace for the fifth most in a calendar year since 1957. Through the end of November, it was also the strongest election year since 1936 for the S&P 500. What do investors have to look to as we head into 2025?

    In the very near-term, investors have the month of December. Going back to 1928, the S&P 500 has had a positive return 74% of all Decembers, the highest positive return rate of any month. The average monthly return of +1.3% in December is the second-best month of the calendar year, on average.

    There are also historical trends around US election cycles to consider. Since 1926, the S&P 500 has averaged +10.7% during the year after Presidential elections, slightly higher than the +10.4% for any given year. This trend largely reflects the ability for new administrations to enact legislative change prior to mid-term election years, which have historically had below-average results.

    Morningstar as of 10/31/24.  Stock market represented by the S&P 500 Index from 1/1/70 to 10/31/24 and  IA SBBI U.S. large cap stocks index from 1/1/26 to 1/1/70. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index.

    What’s on Deck for December?

    • The Federal Reserve will announce any changes to policy on December 18th. As of December 2nd, the market is pricing a 65% chance of a 0.25% reduction in the Federal Funds Rate.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    November 2024 – Market RecapDownload

    •

    William Winkeler

    •

  • Stock Market Recap: October 2024

    Month in Review

    • October was a challenging month for stock and bond markets as bond yields rose sharply during the month. All major markets finished the month lower, with international equities and interest rate sensitive equities falling the most.
    • The S&P 500 finished October down slightly at -0.91% (S&P 500 TR Index), marking the first time in five months that the index has declined.
    • The yield of the 10-year US Treasury rose to +4.28% in October (+0.54% increase for the month), which weighed on bond market returns: the Bloomberg Barclays US Aggregate Bond Index fell -2.48% in October.

    Why are Bond Yields Rising After the Fed Rate Cut?

    The Federal Reserve began its interest rate cutting cycle in September, reducing the Federal Funds target rate by 0.50%. Historically, the start of an interest rate reduction policy has been associated with a decline in bond yields. Why is this? Typically, the Federal Reserve reduces interest rates to help support a slowing economy, whether its slowing due to changes in the business cycle, or an external event.

    This year has been an exception, compared to the seven easing cycles since 1989 (before 1989 Federal Reserve did not officially target interest rate changes). Since the September 18th rate cut, the 10-year Treasury yield has increased nearly 0.60%, the largest increase at this stage compared to the previous seven cycles. It is worth noting that 50-days after the first rate cut, during the previous seven cycles, the 10-year yield was either the same, or lower, than the start.

    What could be driving bond yields higher during the present cycle? It is likely the fact that inflation is declining, while the economy and jobs markets are still growing (at a slowing rate), similar to the 1995 soft landing outcome. Alternatively, it could be a sign that investors are concerned about the lack of any clear plan to address the US government’s fiscal situation. Measuring outstanding debt relative to annual economic growth, the United States has a debt-to-GDP ratio of 123%- meaning more debt outstanding than the rate of economic growth in a given year.

    Source: Yardeni Research, LSEG Datastream

    What’s on Deck for November?

    • US Election Day is on November 5th, which will be a closely followed affair.
    • Earnings season is well underway for the Third Quarter of 2024. Consensus estimates for year/year earnings growth for the S&P 500 was +4.3% for the quarter.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    October 2024 RecapDownload

    •

    William Winkeler

    •

  • Market Update – May 2022

    Though the market changes, our commitment to clients does not. Our Chief Executive Officer, Greg Weimer, and Director of Investments, Bill Winkeler, give you an update on the current market and share insights on how to navigate these times.

    •

    William Winkeler

    •

  • Stock Market Recap: August 2023

    Month in Review

    • Major stock indices broke a two-month streak of gains, with all major indices finishing down for the month.
    • Growth companies regained favor after two months of value and small cap companies leading the market.
    • Bond prices declined due to rising interest rates.

    Insight on Inflation

    Despite the market volatility, evidence from July’s inflation report suggests progress towards a “soft landing” scenario, where inflation is gradually decreasing, and the economy avoids a recession. In July, headline inflation was at +3.3%, year-over-year, down from its peak of 9.1% in June 2022. Unlike June 2022, supply chains and goods have largely normalized, with wages and services being the key drivers of inflation today.

    Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations.  Guide to the Markets – U.S. Data are as of August 31, 2023.

    What’s on Deck for September?

    • The August jobs report supplied additional evidence towards a “soft landing” outcome – more people joined the workforce while wage growth slowed, indicating steady but slower economic growth.
    • A “soft landing” could lead to the Federal Reserve not needing to raise interest rates as high as previously predicted, potentially benefiting stocks and bonds.
    • Investors will now pay close attention to the September and November Federal Reserve meetings for clues about future rate hikes or general shifts in policy.

    Download the August 2023 Market Recap below:

    Market-Recap-Aug-2023-1Download
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

    •

    William Winkeler

    •

  • Stock Market Recap: October 2023

    Month in Review

    • Stocks fell during the month of October, marking the third straight monthly decline for the S&P 500 Index.
    • Bond markets also fell again during the month, the fifth straight monthly decline for the asset class.
    • Concerns over US government funding helped keep interest rates higher in October, pressuring stock and bond markets again.
    • US corporate earnings season is also in full swing, with over 50% of the S&P 500 having reported by the end of the month. Companies have thus far reported positive earnings growth with mixed outlooks.

    Last Rate Hike? Now What?

    The Federal Reserve held its November committee meeting, where they kept interest rates unchanged. Following the press conference, investors are now expecting interest rates to be unchanged again in December (only a 15% probability of a December rate hike as of 11/2/2023).  If the Federal Reserve is finished increasing interest rates this cycle, what does that mean for the stock market? Going back to 1929, there are no clear trends, the range of outcomes following the last hike is very wide historically. While various talking heads remain hyper-focused on short-term events such as this, it is more important than ever that investors maintain their focus on long-term fundamentals.  

    What’s on Deck for November?

    • The autoworkers strike appears to be nearing resolution, while a potential government shutdown remains a possibility ahead of the November 17th deadline.
    • Corporate earnings season is nearly two-thirds complete, with companies reporting earnings ahead of estimates on average, and clocking positive growth this quarter. Investors will focus on forward guidance from companies as the season wraps-up.
    • The next Federal Reserve meeting is not until December 13th, so in the interim investors will continue to look for communications and sign-posts for confirmation the Federal Reserve is done increasing interest rates. The Federal Reserve did confirm their on-going effort to reverse their quantitative easing (QE) program, which is expected to keep interest rates elevated.

    Download the October 2023 Market Recap below:

    Market-Recap-Oct-2023Download
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

    •

    William Winkeler

    •

  • Stock Market Recap: November 2023

    Month in Review

    • Stocks rose sharply in November, breaking a three-month losing streak. Gains were broad based across major markets.
    • Bond markets also broke a five-month losing streak, posting strong results as short- and long-term interest rates fell significantly during November.
    • Multiple data points illustrated that inflation is in continued decline, raising investor confidence that the Federal Reserve is done hiking and turning its focus to potential rate cuts in 2024. 

    A November to Remember!

    November was a month to remember for investors: The S&P 500 posted its strongest November since 1980 (rising roughly 9%) and the Barclays Aggregate Bond Index had its best month since May 1985 (rising roughly 4.5%).

    What were the catalysts for such a sharp reversal?

    Investor sentiment had become overly negative – a three-month losing streak for stocks and a 5-month losing streak for bonds. This set-up was followed by unexpected positive developments on the fight against inflation. Multiple readings during November showed inflation rising by less than expectations. Federal Reserve officials also affirmed progress towards normalizing inflation, the decline can be seen in the exhibit below. The positive developments on inflation drove interest rates lower, sending stock and bond prices higher, as investors now shift their attention away from rate hikes to rate cuts.  

    Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations. Guide to the Markets – U.S. Data are as of November 30, 2023.

    What’s on Deck for December?

    • Earnings season is wrapped up and government shutdown issues have been pushed out until January 19th and February 2nd of 2024.
    • The Federal Reserve meeting on December 13th will be watched closely for comments on the timing and magnitude of the first rate cut and the on-going shrinking of the Fed’s balance sheet. At time of writing, futures markets are implying a 50% chance of a 25bps rate cut during the March 20th, 2024 meeting.
    • As we enter 2024, the US Presidential election will once again be a focus. Despite a significant amount of noise, it is important to remember that the S&P 500 has only had negative returns in election years two of the last 20 election years (2000, 2008).

    Download the November 2023 Market Recap below:

    Nov-2023-Market-RecapDownload
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

    •

    William Winkeler

    •

  • Stock Market Recap: December 2023

    Month in Review

    • Stock and bond markets extended their rally in December, capping off a strong fourth quarter with broad-based gains. Value stocks and US small cap stocks led equity markets higher during the month.
    • Major US bond markets finished in positive territory, preventing what would have been a record-breaking third consecutive calendar year loss.
    • The continued decline in inflationary data and increased likelihood of a rate cut by the Federal Reserve were key catalysts for markets during the month.

    Narrow Market Leadership

    The S&P 500 and growth stocks benefitted from continued strong results from technology companies during 2023. The outsized results of these companies pushed their valuations even higher, with Apple finishing the year as roughly 7% of the S&P 500’s value. This is the largest single weighting in the last 30-years and follows three previous years where Apple represented at least 6% of the S&P 500’s market capitalization. While Apple and six other companies were responsible for the lion’s share of the US stock market’s results in 2023, there are opportunities for broader participation as we head into 2024.

    Source: FactSet and Goldman Sachs Asset Management. As of December 31, 2023.

    What’s on Deck for January?

    • Earnings season starts, analysts expect S&P 500 companies to report the second straight quarter of earnings growth.
    • The Federal Reserve meeting on January 31st, where it is expected to hold interest rates steady. Investors will be focused on commentary and projections regarding the timing of the first interest rate cut. Cooling inflation supports a less restrictive approach from the Federal Reserve.
    • The US government is set to enter a phased shut-down on January 19th barring a new spending bill. Bipartisan negotiations are reported as active at time of writing.   

    Download the December 2023 Market Recap below:

    Dec.-2023-Market-RecapDownload
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

    •

    William Winkeler

    •

  • Stock Market Recap: January 2024

    Month in Review

    • It was a choppy month for stock and bond markets as volatility rose towards the end of January. US large caps squeezed out a positive return, while US small caps and international equities trailed.
    • Investors pushed expectations of interest rate cuts out, helping to increase interest rates, which weighed on major bond markets during the month.
    • Economic data remains strong enough that the Federal Reserve largely took a March rate cut off the table in late January.

    Equity Markets Following Bear Market Recoveries

    The S&P 500 reached a new all-time high on January 25th, illustrating the progress the equity market has made following the most recent bear market. Along with making new all-time highs comes an influx of short-term noise, making it important to review the history of market returns following bear market recoveries. Looking at all 14 cases since 1957, the S&P 500 rose an average of 23% over the 18 month period following the 20% recovery from a bear market low. In present day, the S&P 500 had a bear market low on October 12, 2022, and recovered 20% roughly 9 months later in June 2023. Ignoring short-termism around all-time highs, history suggests the equity markets continue to rise after recovering from a bear market.   

    Source: Yahoo! Finance as of 1/30/2024; BMO Capital Markets via Brian Belski.

    What’s on Deck for February?

    • Earnings season will wrap up, after companies posted largely mixed results in January. 
    • Banks are back in focus following the surprise weakness in some regional bank earnings. Given the events of March/April 2023, investors have heightened sensitivity to any perceived weakness in the banking channel.
    • The Federal Reserve does not have a (FOMC) meeting in February, so investors will look for additional information from Fed officials following the January meeting. The Federal Reserve surprised investors by taking a March rate cut off the table, suggesting it would happen later in 2024 depending on economic data.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    Jan-2024-Market-Recap-3Download

    •

    William Winkeler

    •

  • Stock Market Recap: February 2024

    Month in Review

    • Rally continued for stocks in February, with the key development of broader participation- for example, US small cap stocks had a strong month.
    • String of inflation data and commentary from the Federal Reserve pushed bond yields higher during February.
    • The inflation report released during the month (January CPI) showed prices rising more than expected, driven by higher housing related costs.

    Attention to Interest Rates

    Investors are curious as to when the Federal Reserve will start lowering interest rates. During February, investors recalibrated expectations once again for the start of rate cuts, believing that the first reduction will be pushed back to June 2024. This change makes sense for various reasons: inflation continues to remain somewhat firm, and the labor market remains very strong.

    Historically, forecasting the path of interest rates has been notoriously difficult to do and ultimately, introduces unwarranted noise into investors’ outlooks. The chart below shows how even the Federal Reserve struggles to predict its own interest rate decisions.

    Source: Capital Group, Bloomberg. As of February 23, 2024. Federal funds rate data from January 2016 to February 2024. Forward looking dot plot projections are reported quarterly from September 2016 through December 2023.

    What’s on Deck for March?

    • Inflation data will be in focus as investors watch for any signs of continued increases of prices. The February CPI report is released on March 12th and expected to show declining inflation.
    • The Federal Reserve’s March meeting (FOMC) will be closely watched for commentary around the outlook for growth and inflation. Fed Chair Jerome Powell has already indicated a March rate hike is off the table.
    • As of February 29th, 97% of the S&P 500 companies had reported earnings, with the remainder wrapping up in March. With 97% of companies reporting, year-over-year earnings growth came in at +4%. 
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    Feb 2024 Market RecapDownload

    •

    William Winkeler

    •

  • Stock Market Recap: March 2024

    Month in Review

    • Stock and bond markets rallied during March, with broadening of results- large cap value stocks (+5.0%, Russell 1000 Value TR Index), small cap stocks (+3.6%, Russell 2000 TR Index), and international stocks (+3.3%, MSCI ACWI Ex-USA NR Index) finished the month ahead of large cap growth stocks (+1.8%, Russell 1000 Growth TR Index).
    • Economic data continues to look strong in the United States. The Federal Reserve also confirmed their forecast of three 0.25% interest rate cuts in 2024.

    Time to Look Beyond Cash?

    Last month we discussed the difficulty in forecasting changes in interest rates. During March, investors spent the month aligning their outlook with the Federal Reserve’s guidance, which remains some level of interest rate cuts sometime later this year. While the exact timing cannot be known, we do know that historically there have been opportunities to shift out of cash investments near peak interest rates.

    Going back to the six previous cycles since 1984, investors have been better off investing in bonds, US stocks or a balanced portfolio compared to staying in cash during the 12-months following the peak level of interest rates. Forecasting the exact time of peak interest rates/rate cuts is fruitless, but for long-term investors there is an opportunity to look beyond cash.

    Source: Bloomberg, FactSet, Federal Reserve, Robert Shiller, J.P. Morgan Asset Management. The 60/40 portfolio is 60% invested in S&P 500 Total Return Index and 40% invested in Bloomberg U.S. Aggregate Total Return Index. The S&P 500 total return figure from the 1984 period was calculated using data from Robert Shiller. The analysis references the month in which the month-end 6-month CD rate peaked during previous rate hiking cycles. CD rate data prior to 2013 are sourced from the Federal Reserve, whereas data from 2013 to 2023 are sourced from Bloomberg. CD subsequent 12-month return calculation assumes reinvestment at the prevailing 6-month rate when the initial CD matures.

    What’s on Deck for April?

    • The Federal Reserve meets at the end of April, they are expected to hold interest rates constant. Investors will look for updates around the timing of interest rate cuts and balance sheet changes during the presentation. 
    • The inflation report and jobs report for March will be watched by investors for signs of continued progress on the inflation front, and for any weakening in the jobs market.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    March-2024-Market-RecapDownload

    •

    William Winkeler

    •