Portfolio Manager Commentary

December 1, 2024

Economic Outlook

The ISM Manufacturing Index was 48.4 for the month of November. The NHAB Housing Market Index was 46 for the month of November, indicating slightly better conditions for home builders. The US Leading Economic Index was 99.5 for the month of October, the lowest reading since 2016. U.S. Industrial production decreased -0.3% month over month in October. The University of Michigan Consumer Sentiment Index came in at a final reading of 71.8 for November. 5-Year Breakeven Inflation Expectations are 2.32%, remaining elevated relative to the lows seen in September. Capacity Utilization in the U.S. dropped to 77.1%. Average hourly earnings for all employees on US private nonfarm payrolls have increased by 4% year over year in October. This week features a busy calendar of new economic data releases; headline reports include JOLTS, Employment report, and Beige Book. The average interest rate for a 30-year fixed rate mortgage has risen to 6.81.

Fixed Income

The current federal funds target rate is 4.75-5.00%. The 10-year yield is currently 4.23%, only 1 basis point above the 2-year yield of 4.22%. The U.S. Treasury yield curve continues to flatten as ultra-short duration bond yields fall in the wake of multiple FOMC rate cuts. Last week, the gap between the 2-year Treasury yield and the effective federal funds rate narrowed to its lowest level since October 2023, indicating that bond markets and the Federal Reserve are better in sync. After a run-up that lasted from mid-September well into November, Treasury yields along the yield curve have edged lower in the past two weeks. The next FOMC meeting is scheduled for December 17-18, 2024. Futures markets are undecided on whether to expect a 25 bps rate cut or a pause at the next meeting.

Yield Curve

Current Generic Bond Yields

Equity

Stocks rose in November as the S&P 500 logged a 5.7% increase. This was the largest monthly increase since the index rose 8.9% in November 2023. Likewise, the NASDAQ Composite rose 6.2% during the month of November.

Inflation hasn’t been quite the concern to markets that it was in the past couple of years, but to declare victory would be premature. After several strong data prints related to the strength of the consumer, market participants await the busy economic calendar in the coming days.

Year to date, the best performing sectors have been Financials (+36.02%), Communication Services (+34.21%), and Information Technology (+34.19%). The worst performing sectors this year have been Health Care (+7.76%), Materials (+10.19%), and Real Estate (+11.97%). On a total return basis, the Russell 1000 Growth Index has increased 32.19% year to date, while the Russell 1000 Value Index has returned 22.76% over the same period.