Market Update – December 2nd, 2024

Financial Markets

The holiday week saw a lighter flow of macroeconomic data but delivered key data points from October’s PCE inflation, personal income and spending, consumer confidence, and new home sales. November closed as the strongest month of the year for the S&P 500, with gains across all major indexes. For the week ending November 29th, the Dow Jones Industrial Average rallied 1.39%, the Nasdaq Composite gained 1.13%, and the S&P 500 rose 1.06%. Finally, the Barclays Aggregate Bond Index outperformed equities in the week, rising 1.42%

Source: Zacks

Market News

PCE Inflation

Headline PCE inflation rose 0.2% in October, bringing the annual rate to 2.3%. Core inflation, which excludes food and energy, was slightly higher, increasing 0.3% for the month and 2.8% year-over-year. By category, goods prices decreased by -0.1%, while service prices rose 0.4%, with much of the cooler inflation driven by modest food price increases of less than 0.1% and a -0.1% decrease in energy prices. With PCE inflation remaining above 2%, the Federal Reserve may be more inclined to hold off on a rate cut in December. Current expectations for the December FOMC meeting suggest a 37.8% chance of no rate cut this month (as of 12/2, Source: CME Fed Watch).

Personal Income, Spending, & Saving

October’s personal income, spending, and savings data showed positive trends in income and spending heading into the holiday season. Personal income increased more than expected, by 0.6%, while after-tax disposable personal income rose 0.7% for the month. Personal outlays grew by 0.3%, allowing the personal savings rate to edge up to 4.4%, as income growth outpaced spending.

Consumer Confidence

U.S. consumer confidence improved for the second consecutive month in November, driven by growing labor market optimism. The Conference Board’s Consumer Confidence Index rose by 1.9%, nearing the upper range it has occupied over the past two years. Gains were primarily attributed to consumers’ improved assessments of current economic conditions, particularly regarding job availability. On the other hand, expectations for future business conditions remained flat, with a slight dip in optimism about future income.

Notably, consumers under 35 drove much of the increase in confidence, while those aged 35 to 54 saw a modest decline following October’s surge. Confidence rose broadly, across low- and middle-income groups earning $15,000 to $125,000 annually. These positive trends signal resilience in consumer sentiment, offering a strong foundation for the holiday spending season ahead.

New Home Sales

Sales of new U.S. single-family homes fell to their lowest level in nearly two years in October, as rising mortgage rates pushed many buyers to the sidelines. New home sales dropped -17.3% to a seasonally adjusted annual rate of 610,000 units. While the median sales price increased to $437,300, higher than a year ago, it remained below October 2022’s median price of $460,300. This decline in new home sales contrasts with rising volumes of existing home sales during the same month, highlighting a unique market dynamic.

Summary

The holiday week brought important data, including October’s PCE inflation at 2.3% annually and core inflation at 2.8%, which could influence the Fed’s December decision. November closed as the S&P 500’s strongest month of the year, with gains across all major indexes. Personal income and spending rose, boosting holiday expectations, while consumer confidence increased for a second month. However, new home sales dropped sharply in October, contrasting with growth in existing home sales.

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