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WEEK AHEAD
November 11-15, 2024
Equity markets regained strength from the Trump surge, which substantiated our technical indicators. Our portfolio strategy remains fully invested.
In a comeback that could make even the TV drama The Diplomat Season 2 seem tame, Trump's emphatic victory last Tuesday – coupled with the GOP reclaiming Senate control – has reignited the so-called "Trump Trade." If the echoes of 2016 feel familiar, that's because they are pro-business, deregulation, a strong dollar, tax cuts, and a resurgent fossil fuel industry all retook the stage, drowning out the Fed's modest ¼ percent rate cut. Equity markets, sensing a sequel in the making, roared ahead, with the S&P 500 vaulting +4.69% for the week, flirting past the 6,000 mark like it was a stop on the way to Goldman Sachs' forecast of 6,300.
Beneath the headline gains, small-cap stocks and financials led the charge, surging nearly 6% as investors bet on a repeat of the 2016 playbook. Not far behind were energy and industrials, both adding over 4%, basking in the glow of renewed optimism for traditional sectors.
Bonds, however, found themselves caught between two forces: yields initially spiked on the stronger dollar and economic outlook but eventually eased down after the Fed's rate cut and a disappointing non-farm productivity print of just 2.2%. By week's end, the 10-year Treasury yield settled at 4.3%, just shy of last week's 4.37%. It seems the Trump Trade is back – and this time, it's got a sequel to live up to.
Tesla stock, which had been idling in neutral year-to-date heading into election week, got an instant Trump Trade jolt post-election, rocketing up 29% and adding a staggering $200 billion in market cap. The catalyst? Elon Musk, one of Trump's campaign's largest donors, received a shout-out during Trump's November 6 victory speech. "Oh, let me tell you, we have a new star. A star is born—Elon," Trump proclaimed, giving Tesla a prime-time endorsement that no Super Bowl ad could match. It didn't take much after that for the stock to take off like one of Musk's rockets. The surge came despite Tesla having already reported earnings on October 23, signaling that the market, like Elon, sees a lucrative future in being on Trump's speed dial. As they say, the rest is history—except, in this case, it's happening in real time.
With the election in the rearview mirror, the focus now turns to the road ahead, particularly as we approach the final FOMC meeting of the year on December 18. All eyes are on whether the Trump Trade, revived by his re-election as the 47th president, can sustain its momentum as he begins to assemble his cabinet and outline his policies for the next four years.
This week's action will hinge on two pivotal data releases: Wednesday's CPI report and Friday's Industrial Production numbers, both critical indicators that could influence whether the Fed opts for another rate cut. Market watchers will also follow earnings reports from key bellwethers—Home Depot, Walt Disney, Cisco, and Applied Materials—as investors look for signals about the strength of the broader economy and sectors sensitive to policy shifts.
"We continue to be confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained, with inflation moving sustainably down to 2 percent." — Chair Powell's FOMC Press Conference, November 7, 2024.
Impact of Rising Yields - Falling Mortgage Applications
In few places is the rise in Treasury yields more strongly felt than in the housing market, where restrictive Fed policy and tight supply have conspired in the last couple of years to put a damper on activity. As momentum built toward the Fed's pivot on interest rates, there had been hope that impending easing might lead to a recovery in US home sales. Unfortunately, as robust economic data in recent weeks diminished expectations for aggressive Fed cuts going into 2025, homebuyers' enthusiasm has likewise slumped.
Mortgage applications skid lower. That turn in sentiment as mortgage rates hover close to a two-month high is reflected in data out last Wednesday on mortgage applications tracked by the Mortgage Bankers Association (MBA). That weekly report showed US mortgage applications dropped 10.8% over the one week ending November 6, marking a sixth straight week-over-week decline.
Refinancing applications—which are particularly sensitive to short-term fluctuations in borrowing costs—slipped by an even steeper 8.5% from the prior week. Applications for new home purchases similarly fell by 5% week-over-week, underscoring the impact that rising rates are having on potential homebuyers.
A bright spot in new home sales
Better news came on October 24, as data from the US Commerce Department showed sales of new single-family homes rose by a seasonally adjusted annualized rate of 738K, solidly surpassing the consensus estimate of 720K. That figure was 4.1% higher than the rate in August and 6.3% better year-over-year. Chalk it up to the impact of falling mortgage rates in August. On the other hand, with housing affordability still abysmal and a tight supply of existing homes, sales in that category fell 1% month-over-month and 3.5% year-over-year in September.
Uncertainty keeps buyers on sideline
Divergent data—which seem to us, on balance, a bit negative—illustrate what a challenging environment it is for the US housing market. US economic strength continues pressuring mortgage rates upward, continuing a trend seen over the past few weeks, with the disconnect between pessimistic views and strong economic data contributing to an unusually high level of volatility in mortgage rates, despite the US economy being on a solid footing. In the meantime, Americans seeking to buy a home will likely be content to wait for more clarity.
Disclosure: Reprinted and revised with permission from Rayliant Investment Research in partnership with Affinity Investment Advisors. The article was originally published on October 28, 2024.
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