November 23, 2024 Market Update

Boosted by a positive economic outlook and better than expected business activity data, all major U.S. stock indices saw positive returns for the week ending November 22, 2024, with the Dow reaching a new record close on Friday.  The Russell 2000 Index, which tracks small-cap U.S. stocks, surged almost 4.5% outperforming other equity indexes.  The S&P 500 Index and Nasdaq also posted solid gains, rising by approximately 1.70%.

Meanwhile, the bond markets showed reduced activity compared to recent weeks, with the 10-year Treasury yields remaining largely unchanged.  The overall U.S. bond market, as measured by the Vanguard Total Bond Market ETF (BND) rose by 0.15%, reflecting moderate growth in fixed-income investments.

Interest rates remain elevated, driven higher in recent weeks by positive economic data, growing inflation concerns, and remarks by Federal Reserve Chairman Powell’s suggesting that the Federal Reserve is prepared to leave rates higher-for-longer.

Bond prices move inversely to interest rates, because outstanding bonds with lower interest rates must trade at a discount to compete with newly issued bonds with higher yields. 

Higher yields also pose a threat to the stock market, as higher borrowing costs dampen corporate profits.  Elevated yields also make bonds a more attractive alternative to equities, potentially drawing funds that would otherwise have been invested in equities.

The rise in yields has also strengthened the U.S. dollar, creating headwinds for export-driven companies and emerging markets.  While a strong dollar helps curb inflation domestically, it can exacerbate challenges abroad, particularly in economies reliant on dollar-denominated debt.

One bright spot in the bond market is Treasury Inflation-Protected Securities (TIPS).  These government-backed securities adjust with inflation.  Currently, they offer a return of about 2% above the rate of inflation.  This makes TIPS a particularly attractive investment for long-term investors seeking inflation protection.

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