CWG Investment Committee: Markets Ride the Election Wave

Major indices edged lower in October, breaking impressive winning streaks in the process. The S&P 500 had gone up five months in a row. The month delivered -0.9%. The Nasdaq’s three-month streak was clipped after sliding -0.5%. The DJIA and Russell 2000 both slid -1.3% and continued their trend of underperforming the S&P 500 year-to-date.

Markets have started November with a bang after a convincing Republican victory. The nation has avoided the dreadful scenario where the losing party sought to contest the outcome which would have injected uncertainty into the markets. We anticipated volatility leading up to the election. Instead, asset markets priced in a Trump win in the two weeks leading up to November 5th.

The market will not, however, get the typically preferred outcome of a gridlocked Congress. Republicans seem to have secured majorities in both the House and Senate. We will be monitoring any major policy shifts coming in 2025; in particular, those surrounding fiscal, regulatory, and tax issues.

For the moment we are seeing a post-election rally with all three major indices hitting fresh all-time highs. Our attention will turn to positioning our allocations as the market realigns itself to close out the year.

Another important story for October was that U.S. treasury notes and bonds saw significant declines across the curve. Yields on the 2-year and 10-year notes ballooned to 4.15% and 4.30%, respectively. Considering the Fed announced a 50-bps cut in late September, this was a curveball for investors. Factors driving the bond market are traders’ concerns over federal debt/deficits and the possibility of inflation reigniting.

The stock market seems to ignore most negatives and grinds higher than many experts have anticipated. These are typical characteristics of a bull market, and we appreciate every tick upward, since inevitable pullbacks are normal and healthy as well.

While we continue to have an expensive stock market, Q3 earnings reports are coming in as expected and prospects appear to have improved given a more business-friendly administration in the coming years.

The Fed lowered rates once more at Thursday’s meeting by 25 bps. Jerome Powell and FOMC insist the current Fed Funds rate is restrictive and needs to be loosened, but an argument is brewing on Wall Street that the Fed has cut too quickly as the economy and labor market remain strong. We will wait on economic data for more clues as to where to go next.

We have a lot to be thankful for here in our great country and we wish you all a very Happy Thanksgiving!