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WEEK AHEAD
December 9-13, 2024
The momentum cushion builds, bolstered by another week of gains. Our technical signals remain balanced and fully invested.
The labor market's signals were mixed but clear enough to shift the tone. The unemployment rate edged up to 4.2%, a modest rise from 4.1%, while the U6 underemployment rate ticked up to 7.8%. Labor force participation slipped to 62.5% from 62.6%, underscoring the challenges of a cooling labor supply. These aren't signs of collapse; they're reminders that economic growth must be inclusive and resilient to endure.
Ever the economy's barometer, the bond market reflected this softer data with a measured response. The 10-year Treasury yield dipped 3 basis points to 4.15%, while the one-month Treasury yield fell by a sharp 19 basis points. The Bloomberg U.S. Aggregate Index capitalized on the moment, gaining +0.45% for the week and bringing its year-to-date return to +3.4%. These movements show the power of smart, steady adjustments to sustain progress.
As we look ahead, the focus now shifts to the final act of 2024's monetary policy. Economic data—including wholesale inventories, CPI, PPI, and weekly jobless claims—will set the tone, while major earnings from Adobe, Broadcom, Costco, and Oracle will offer a clearer picture of corporate strength. These numbers aren't just data points; they're guideposts for the state of the economy.
"Everybody around this place – Democrat and Republican – says we need to spend less. But it's like going to heaven. Everybody wants to go to heaven, nobody's quite ready to take the trip."
– Louisiana Senator John Kennedy remarks on reducing the spending, July 2019
Trump Tariffs 2.0
President-elect Donald Trump announced plans for a new trade policy, set to take effect after his return to office in January 2025. On his social media platform, Truth Social, Trump stated his intention to impose a 10% tariff on all imports from China and a 25% tariff on imports from Mexico and Canada. The announcement has sparked widespread debate over its potential economic and geopolitical consequences.
Trump's tariff strategies are not new. During his first term, he imposed multiple tariff hikes targeting China, impacting $550 billion of goods. These measures were intended to boost American manufacturing, curb China's trade advantage, and stimulate domestic economic growth. By raising the cost of imported goods, Trump aimed to encourage the consumption of U.S.-made products, protect domestic industries, and create jobs.
However, these policies come with significant trade-offs. Higher tariffs would increase prices on everyday goods like food, clothing, and electronics, burdening consumers, especially those in lower-income brackets. This could raise the cost of living and reduce consumer spending, undermining economic growth.
Particular industries could be more heavily affected. U.S. agriculture, heavily reliant on exports to China, would likely face serious challenges. Key crops like soybeans and corn could become less competitive in international markets due to the higher costs imposed by tariffs. Reduced exports would hurt farmers' revenues, increase dependence on government subsidies, and strain the rural economy. Besides, multinational corporations would be particularly affected. Higher tariffs on imports would inflate operating costs, reducing competitiveness and profitability. Industries reliant on imported components, such as technology and automotive sectors, would feel the most pressure. Companies might need to adjust supply chains or even reconsider their presence in the U.S., further destabilizing markets.
Globally, the impact of Trump's tariffs could reshape trade dynamics. U.S. businesses might lose market share to competitors as higher tariffs make their products less attractive. Retaliatory measures by other nations could further strain international trade and economic growth, increasing geopolitical tensions. This shift toward protectionism would disrupt established trade flows and create uncertainty in global markets.
From an investor's perspective, Trump's tariff policies introduce significant uncertainty. Tariff fluctuations and unpredictable changes in commodity prices would complicate decision-making. Certain businesses could face squeezed profit margins, and the resulting market volatility might deter investments. Investors may favor safer opportunities, delaying or abandoning plans in the U.S. market. The policy could also drive structural changes in industries. Rising costs might push some companies out of the market, creating opportunities for others. At the same time, businesses might increase investment in research and development to improve competitiveness in a more protectionist environment. These shifts present both opportunities and risks for investors.
Long story short, Trump's proposed tariff policies aim to safeguard U.S. industries and jobs but carry significant global implications. From higher consumer costs to disrupted supply chains, these measures could destabilize markets, heighten volatility, and reshape global trade dynamics. However, they also present opportunities for businesses and investors to capitalize on the growing trend toward domestic goods and industries. The uncertainty surrounding these policies will play a crucial role in shaping strategies and market trends. Investors should remain vigilant and prepared to seize emerging opportunities while mitigating potential risks.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.