LSA Connect

Economic Update 1-06-2025

• In a New Year holiday-abbreviated week, economic data included an improved (but still contractionary) ISM manufacturing report, minimally-changed construction spending, and continued movement higher for residential home prices.

• Equities fell globally last week, in contrast to a positive year (to say the least, in the U.S.). Bonds gained a bit as interest rates settled from recent volatility. Commodities gained along with rising prices for crude oil and gold.

U.S. stocks finished 2024 strongly, with the S&P up over 25%, representing the second straight year of gains of 20%+. Though, the full short week ended negatively, with what appeared to be some profit-taking, late seasonal adjustments, and a downgrade of Q4 U.S. economic growth as measured by the Atlanta Fed GDPNow (down from 3.1% to 2.6%). Small caps, on the other hand, had a solidly positive week. In the S&P 500 by sector, energy led with gains of over 3%, followed by utilities. The largest declines were experienced by materials, consumer discretionary (primarily volatility with Tesla), and consumer staples, each down at least a percent.

Economic Update 12-30-2024

• In a holiday-shortened week, economic data included declines in durable goods and consumer confidence and a rise in new home sales.

• Equities gained around the world last week, with developed markets outearning the U.S. and emerging markets. Bonds fell back as a whole, as yields continued to rise due to a number of underlying dynamics. Commodities were mixed, with positivity in energy and base metals.

U.S. stocks saw gains on net for the short week, despite a pullback by Friday, with additional pressure from higher long-term interest rates. Nearly every sector saw gains, led by energy, health care, communications, and financials, while materials and consumer staples saw slight declines. Real estate earned a small gain, despite interest rates rising again. The last several trading days of a calendar year can result in some unusual market movements at times, due to lower trading volumes because of vacations and institutional portfolio repositioning, including popular ‘window dressing’ trading activity, reset of cash levels, and other rebalancing activities.

Economic Update 12-23-2024

• Economic data in a busy pre-holiday week included the Federal Reserve cutting interest rates, as expected, although assumptions for next year have tightened. U.S. GDP for Q3 was revised higher by several tenths, while retail sales rose with strong holiday spending, and existing home sales rose. Also positive was the Index of Leading Economic Indicators turning positive for the first time in nearly three years. On the other hand, industrial production and housing starts fell back. PCE inflation for the month was weaker than expected, although the year-over-year pace was little changed.

• Equities fell globally for the week, along with the assumptions for less accommodative future policy. Bonds declined for similar reasons, as long-term yields climbed. Commodities fell back across the board, along with a stronger U.S. dollar.

U.S. large cap stocks continued their gains last week, with the S&P, Dow, and NASDAQ reaching more all-time highs, while small caps fell back. Growth outperformed value by the largest margin in over a year, led by the concentrated Magnificent 7 group. By sector, strong gains in consumer discretionary of 6% (led by Tesla and Amazon), technology, and communications offset declines elsewhere, notably declines of -4% in energy and utilities. Real estate also fell back despite the small drop in yields.

Economic Update 12-16-2024

• Economic data included consumer price inflation rising, but at a similar pace to the prior month, while producer price inflation ticked up at a faster pace.

• Equities were mixed to down globally, with some positivity in U.S. growth and emerging markets. Bonds were down as yields rose for the week. Commodities gained on the heels of a spike in crude oil prices.

U.S. large cap stocks continued their gains last week, with the S&P, Dow, and NASDAQ reaching more all-time highs, while small caps fell back. Growth outperformed value by the largest margin in over a year, led by the concentrated Magnificent 7 group. By sector, strong gains in consumer discretionary of 6% (led by Tesla and Amazon), technology, and communications offset declines elsewhere, notably declines of -4% in energy and utilities. Real estate also fell back despite the small drop in yields.

Economic Update 12-9-2024

• Economic data included slight improvement in ISM manufacturing, but a slight deterioration in ISM services. The November employment report saw gains, as negative one-off conditions from the prior month normalized, although the unemployment rate rose a bit. Consumer sentiment rose slightly but was split along political lines around the election.

• Equities saw gains in both the U.S. and abroad. Bonds also rose, as interest rates fell back. Commodities were mixed, with agricultural prices higher but energy lower.

U.S. large cap stocks continued their gains last week, with the S&P, Dow, and NASDAQ reaching more all-time highs, while small caps fell back. Growth outperformed value by the largest margin in over a year, led by the concentrated Magnificent 7 group. By sector, strong gains in consumer discretionary of 6% (led by Tesla and Amazon), technology, and communications offset declines elsewhere, notably declines of -4% in energy and utilities. Real estate also fell back despite the small drop in yields.

Economic Update 11-18-2024

• Economic data for the week included declines in retail sales and industrial production, while producer and consumer inflation remained sticky—especially on the shelter side.

• Equities lost ground across the board last week, as the post-election rally faded a bit. Bonds also fared poorly as interest rates ticked higher. Commodities also lost ground with a stronger dollar and demand concerns holding down sentiment.

U.S. stocks pulled back last week, in a reversal of pre- and early post-election gains. By sector, financials and energy eked out gains of a percent each for the week to lead, each with hopes for benefits from deregulation in the new administration, while all other sectors ended in the negative, led by an over -5% drop in health care, in addition to -3% drops in technology and materials. Health care sentiment was pulled downward by the announcement of Robert Kennedy, Jr. as nominee to lead the Department of Health and Human Services (responsible for nearly a quarter of the Federal budget within Medicare, Medicaid, and others), who’s had an extensive history of being critical of big pharma and vaccines, and has held some views seen as non-traditional in the medical community.

Economic Update 11-11-2024

• Economic news for the week included the U.S. Federal Reserve cutting the Fed funds rate by another quarter-point. In terms of data, ISM services ticked higher, remaining in strong expansion, and productivity saw gains in Q3, although labor costs rose as well.

• U.S. stocks gained ground for the week following the conclusion of the Presidential election, while foreign stocks saw mixed results. Bonds fared positively as yields pulled back from recent highs. Commodities were mixed, with gains in energy offset by a decline in metals.

U.S. stocks were little changed in the early part of the week, before the results of Tuesday’s general election. The strong Republican showing resulted in a strong rally starting Wednesday, with votes still being counted to determine the composition of the House and possible red sweep. The general hope for markets with this political arrangement is lower corporate taxes, a light-touch regulatory environment, and stronger upcoming earnings growth. The ends of election seasons have also tended to prompt a ‘relief rally’ of sorts historically. The FOMC rate cut was icing on the cake, although expectations for next year have become less dovish. Small caps fared especially well, as would be expected in such an environment.

After a long campaign season, with key policy points discussed ad nauseum, the following serves as a status update of several more economically-oriented issues. Considering that major policy changes tend to require Congressional approval, the outcomes of the Senate and House races are just as important as the Presidential, if not more so. One caveat is that final tallies are still in progress for a handful of close races, but as it stands currently, there is the potential for a Republican sweep for the executive branch, Senate, and House—which the narrative below implies, for simplicity’s sake. (Topics are listed alphabetically, not in order of importance.) This is important, in that a sweep paves the way for purer and more expedient policy transmission, while a split House and Senate creates far more hurdles to fast/easy policy, requiring compromise and diluted policy, or even disagreement to the point of minimal new legislation being produced.

Economic Update 11-04-2024

• Economic data for the week included U.S. GDP growth showing another strong quarter, as did personal income and spending. Manufacturing data continued to contract, as has been the trend over the past several years. The monthly employment situation report was far weaker than prior months, below lower expectations, due to the impacts of hurricanes and a major labor strike.

• Equities fell back last week with mixed company earnings call commentary and higher interest rates. Bonds fell back as yields continued to move higher, with concerns over fiscal spending. Commodities fell back as geopolitical concerns related to the Middle East faded a bit.

U.S. stocks fell back as a whole last week, with notable weakness in large cap growth offset by lesser declines in value and minimal change in small cap stocks. By sector, communications gained over a percent (mostly Alphabet/Google) to lead, while technology (Apple, Microsoft, and NVIDIA), utilities, and energy all lost several percent for the week. Real estate also fell by -3% along with higher long-term interest rates. On Thursday, markets took a downward turn after quarterly reports from Microsoft and Meta especially. Despite decent Q3 numbers, this appeared to be due to continued concern over high levels of AI infrastructure spending, and an uncertain timeline for this capex to translate into sales. Obviously, the higher the price ratios rise for such companies, the greater the market sensitivity to potential disappointment. Sentiment on Friday improved dramatically as a weak jobs report (albeit weather- and strike-driven) provided more hope again for keeping Fed rate cuts on track. With such a close national election race, removing the uncertainty will be a key theme of the coming week.

Economic Update 10-28-2024

• Economic data for the week included a decline in overall durable goods, mixed results in housing sales, as well as higher continuing jobless claims, due to a variety of weather and labor issues.  

• Equities declined globally, with higher interest rates and less certainty about central bank rate easing looking forward. Bonds fell back along with rising yields at the longer end of the curve. Commodities gained, largely due to energy, despite a stronger dollar.

U.S. stocks lost ground for the first time in six weeks, as higher interest rates associated with an assumed more drawn-out Fed rate cut cycle and perhaps higher future deficits post-election weighed on sentiment. By sector, consumer discretionary experienced a percent gain (led by a 20%+ return for Tesla, upon better than expected earnings and vehicle sales projections) and a small gain for technology, while negativity was most pronounced in materials, industrials, and health care. Large cap fared better than small cap. Real estate fell about -2% upon the rise in yields.

Economic Update 10-21-2024

• Economic data for the week was mixed, with positive reports for retail sales, while industrial production and housing starts declined. Jobless claims were decent, considering the negative weather- and labor-related impacts.

• Equities were mixed globally, with gains in the U.S. on net, and declines abroad, tied with a pullback in China’s recent rally. Bonds were flattish with little change in the yield curve. Commodities were down for the most part, with lower perceived geopolitical risks pulling down oil prices.

U.S. stocks saw continued gains last week, led by continued reinvigorated strength in small cap stocks over large. By sector, utilities, financials, and materials led the way with gains of roughly 2% or more. Energy was the laggard, falling by nearly -3% upon continued weakness in oil prices. Real estate also gained several percent.