November 16, 2024, Market Update

Friday’s strong retail sales report combined with Federal Reserve Chairman William Powell’s announcement on Thursday that that the Fed was in no hurry to lower interest rates curtailed the stock market’s post-election rally. All major U.S. stock indexes posted losses for the week ending November 15th. The tech-heavy Nasdaq and the small-cap-oriented Russell 2000 both dropped more than 3%, while the S&P 500 and Dow also pulled back from their record highs.

The bond market faced similar struggles, with the yield on the 10-year Treasury rising another twelve basis points to close the week at 4.43%, a level not seen since July 2024. The broader U.S. bond market, as measured by the Vanguard Total Bond Market ETF (BND), posted a loss of 0.83%.

The stock and bond markets have experienced heightened activity and volatility since Donald Trump’s re-election, as investors considered how his policies could impact the economy. Proposals by President-elect Trump that have the potential to significantly impact the markets, if enacted, include:

Greater Spending. President-elect Trump's plan to increase infrastructure spending could boost economic growth in the near term, increasing corporate profits, which would be bullish for stocks. However, those plans could also lead to larger budget deficits, putting upward pressure on Treasury yields, particularly in longer-duration bonds, as the government borrows more to fund spending. Rising yields could negatively affect bond prices.

Stronger Dollar. While Trump campaigned on lowering the value of the U.S. dollar, higher bond yields would increase demand for the greenback. A stronger dollar would make U.S. goods more expected, which would hurt profits of companies who rely on exports for a significant share of their profits.

Lower Taxes. President Trump has vowed to extend the Tax Cuts and Jobs Act (TCJA), enacted in December 2017 during President Trump's first term, which is set to expire on December 31, 2025, and to lower corporate and individual taxes further. Lower taxes would increase corporate profits and support consumer spending, both of which would provide a tailwind for the equity markets.

Deregulation. Trump's commitment to rolling back regulations in sectors like energy, healthcare, and financial services could further boost domestic stocks. By reducing compliance costs and barriers to growth, deregulation is likely to benefit sectors that have been weighed down by regulatory burdens.

Trade Policies. Trump's protectionist trade stance and the possibility of raising tariffs, particularly on Chinese goods, could hurt export-dependent economies, especially in emerging markets. Trade disruptions may reduce global growth prospects, leading to lower prices for international stocks.

Inflation Worries. The combination of aggressive fiscal stimulus, tax cuts, deregulation, and higher tariffs could increase inflationary pressures. If inflation accelerates, the Federal Reserve may have to raise interest rates more quickly, causing bond yields to rise and bond prices to decline. Higher interest rates would also increase borrowing costs, which would be problematic for the stock market.

Considering the foregoing, investors should prepare for heightened volatility as markets grapple with the implications of renewed fiscal stimulus and potential shifts in trade policy. While the short-term outlook remains uncertain, the resilience of diversified portfolios combined with The Milwaukee Company’s disciplined, rules-based approach should help navigate the choppy waters ahead.

That’s all for now. Have a great weekend and invest wisely, my friends.