Market Update – November 18th, 2024

Financial Markets

Stocks sold off last week following the post-election rally, as concerns grew that a resilient economy might prompt the Federal Reserve to delay expected rate cuts. By the close on Friday, November 15, the Nasdaq Composite led the declines, falling -3.21% for the week, followed by the S&P 500, down -2.18%, and the Dow Jones Industrial Average, which dropped -1.91%. Bonds also faced pressure, with the Barclays Aggregate Bond Index declining -0.63% for the week.

Market News

October CPI

Inflation data for October came in largely as expected, with CPI rising 2.6% from a year ago. Core CPI, which excludes volatile food and energy prices, remained slightly higher at 3.3% annually. On a month-over-month basis, both metrics saw modest gains, with headline CPI rising 0.2% and core CPI increasing 0.3%, marking the third consecutive month of identical monthly inflation for both measures.

By category, housing inflation remained stubbornly high, rising 4.9% in the past year. On the contrary, lower energy prices contributed to cooling inflation, with energy costs down -4.9% year-over-year and gasoline prices falling -12.2%.

Grocery prices rose a modest 1.1%, reflecting stabilization in food costs, while the vehicle market saw continued deflation. New car prices dropped -1% annually, and used car prices fell -3.4%, providing some relief for consumers. While the overall inflation picture has improved, elevated costs in key categories like shelter continue to strain household budgets.

Source: Bureau of Labor Statistics

October PPI

Producer prices showed a modest uptick in October, with headline PPI inflation rising to 2.4% annually, up from 1.9% in August and 2.0% in September. Core PPI, which excludes volatile food and energy prices, climbed to 3.5% annually, indicating underlying price pressures. On a month-over-month basis, headline PPI rose 0.2%, while core PPI increased 0.3%.

Goods prices edged up 0.1% for the month, but excluding deflationary effects from food and energy, goods rose 0.3%. Meanwhile, services saw a 0.3% monthly increase, driven by a 0.5% rise in transportation and warehousing costs. This data suggests that the disinflation trend may be slowing, potentially prompting the Federal Reserve to take a more cautious approach toward future rate cuts.

Source: Bureau of Labor Statistics

Retail Sales

October retail sales showed strength in the US economy, rising 0.4% for the month and 2.8% year-over-year, translating to a real annual increase of 0.2% when adjusted for inflation. Gains were driven by strong auto sales, up 1.6% for the month, and a 2.3% jump in electronic and appliance sales. Nonstore retailers, which includes online shopping, saw a robust 7.0% year-over-year increase, while spending at food services and drinking places grew 4.3% compared to October 2023. This solid month of retail sales highlights strength in consumer spending, a key pillar of the U.S. economy.

Anxious Index

The Anxious Index, based on a quarterly survey of professional forecasters conducted by the Federal Reserve Bank of Philadelphia, gauges the probability of real GDP declining in the upcoming quarter. In the latest survey of 33 economists, the near-term outlook for the U.S. economy has improved significantly.

The chance of negative GDP growth in Q4 2024 has dropped to 8.9%, down sharply from the 21% likelihood projected last quarter. Moreover, forecasters expect lower probabilities of recession in Q1 2025, Q2 2025, and Q3 2025 compared to August projections.

Annual real GDP growth is forecasted to total 2.7% in 2024 and 2.2% in 2025, while the outlook for unemployment remains stable compared to the last survey. As a result of this positive momentum, the Anxious Index has shifted from neutral to bullish among our recession indicators, demonstrating reduced near-term recession risks.

Source: Federal Reserve Bank of Philadelphia

Recession Indicators

Despite the positive developments reflected in the Anxious Index, the broader picture remains mixed. Our Recession Indicator Dashboard currently shows an even split of four bullish and four bearish indicators, signaling uncertainty.

Among the bullish indicators, the ISM Services Index and the Employment Trends Index have been long-standing positives. On the other hand, the ISM Manufacturing Index and the Leading Economic Index have remained bearish for quite a while.

As the U.S. economy appears to teeter between phases of the business cycle, forecasting remains particularly challenging. While the improving Anxious Index offers reasons for optimism, we remain cautious given the mixed signals from other key indicators.

Summary

This week’s economic data reflected a resilient but uncertain U.S. economy. Stocks sold off as concerns grew that strong economic data might delay Federal Reserve rate cuts. October inflation remained in check, with CPI rising 2.6% annually and core CPI at 3.3%, though stubborn housing inflation and an uptick in producer prices hinted at slowing disinflation. Retail sales rose 0.4% for the month and 2.8% year-over-year, highlighting strong consumer spending, particularly in autos, electronics, and online shopping. The Anxious Index showed reduced recession risks, with Q4 2024 GDP contraction odds falling to 8.9%, and forecasters projecting 2.7% GDP growth for 2024. Despite this, recession indicators remain mixed, with bullish signals from services and employment offset by bearish manufacturing and leading indicators.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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