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MARKET INSIGHTS NOVEMBER 2024

By: ANTHONY MINOPOLI, PRESIDENT & CHIEF INVESTMENT OFFICER

With my apologies and your forgiveness, I am writing Market Insights on November 6th. I figured with the election it was worth the wait! I am a little surprised but pleased that we know the winner. It is my true hope that this country can move together and unite as Americans. I am hopeful and now it is up to President Trump to be presidential. My younger brother has special needs, and all of the political commercials drive him to distraction. At the end of a typical political ad when the candidate states “and I approve this message,” Vinny will bellow “I don’t” from wherever he is in my parents’ house. I have not spoken to him today, but I am sure he is relieved the election is over.

The Democrats ran an interesting campaign, ousting a seemingly diminished President Biden in favor of Vice President Harris, but without Harris running a true primary campaign. The Democrats' message centered on their view that a second term President Trump would focus on a national abortion ban and that fundamentally Trump is unfit to lead the country. The Republicans, in this election, focused more on what proved to be of general concern to the country: the economy (broadly defined), inflation, immigration, and geopolitics.

As I write this essay at 9:30 a.m. on November 6th, the Dow is up 2.8%, The S&P 500 is up 1.9% and the Nasdaq is up 1.7%[1]. Big move! Bonds have sold off more than a point, with the 10-year Treasury yielding 4.46% and the 2-year Treasury yielding 4.29%1. Recall, that we had been in an inverted curve scenario and now the 2s-10s spread is a positive 17 basis points1. The backup in Treasury yields is not surprising to me because neither the Republicans nor the Democrats have spoken about any serious plan to contain the national debt and deficit. With the Presidential election decided, tax cuts, border walls, and military spending will all be additive to the deficit and also prove to be inflationary. The offset will be if we see spending cuts elsewhere in the federal budget. I am concerned that the essential points of Trump’s priorities will be inflationary.

In the rest of the economy, oil is back down near $70 per barrel and gold has traded down a bit1. The last reading of GDP shows an annual growth rate of 2.8%1. Consumer Prices are still slightly elevated at an annual growth rate of 2.4% and 3.3% ex-food and energy1. Unemployment stands at 4.1% and underemployment at 7.7%1. Despite the strong returns in the market this year, the Fed has strengthened its gaze on the employment market. While unemployment is at a reasonable level, job creation has been weakening and the anecdotal reports in the U.S. are showing some fissures in the employment segment. The Fed takes its dual mandate very seriously, but given inflation is tamer than it was a year ago, they are now focused on keeping the employment market strong. Given the market activity and the backup in rates, we are now seeing a lower likelihood that the Fed will reduce interest rates at their next meeting.

Geopolitics remain very important at this moment. Iran has used their proxies to fight Israel, but Israel has significantly weakened both Hamas and Hezbollah. Hezbollah is the more important and more formidable opponent and Israel’s targeted air strikes have diminished their capacity. Indeed, Iran’s own security has been diminished by Israel. I read an article that Iran had four Russian surface-to-air installations and Israel destroyed all four, meaning that Iran has very little ability to defend itself from an air attack within their borders. It was generally hoped that the targeted attack from Israel could provide an off-ramp for the Iranian regime, and we could move to some level of peace agreement. The Iranians continue to saber rattle so there is still unease in the region.

China continues to antagonize Taiwan, and we are watching to see if the Chinese take any serious action in the waning days of the Biden administration. At the same time, the Chinese have become a little unsettled with North Korea sending troops to assist Russia in its fight against Ukraine. The Russians certainly look weaker in that they needed to bring North Koreans into the war because they could not bring enough soldiers to the battlefield. With a second Trump presidency, it will be important to see if Trump follows through with tariffs on Chinese imports and if the Chinese push back in other ways.

Many times, I have mentioned the old adage that the markets climb a wall of worry. We are at a point where there are a number of things we are worried about. In the bond market, the 10-year yield has climbed dramatically from the near-term low of 3.62% on September 16th and is up about 84 basis points through today[1]. Inflation is not over but the stock market may need another jolt to continue rising. If the market is waiting for the next Fed rate cut, it may not happen at this meeting. The Trump trade is really focused on deregulation and an attempt to unleash economic growth. The U.S. economy does have tremendous capacity to grow, but we are weighing that with inflation, employment, and interest rates.

I hope President Trump endeavors to pull the country together because the level of divisiveness is significant. Our differences on key items such as abortion, border politics, and economic priorities will remain. How we engage in public discourse may lead us to be more unified.

Stay tuned!

[1] Source: Bloomberg

A portrait of Anthony Minopoli wearing a dark suit, white shirt, and red tie.

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

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