Beacon 'Pointe of View'

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The Quick Facts

The S&P 500 posted its biggest monthly gain of 2024 with a 5.9% return.
Small caps soar with the Russell 2000 Small Cap Index up 11.0% in November, bringing the YTD return to 21.6%, but shy of the S&P 500’s 28.1% YTD return.
Non-U.S. equities see no benefit from the “Trump rally,” with Europe, Australasia, the Far East (EAFE), and Emerging Markets (EM) down 0.5% and 3.6%, respectively, for November.
Republicans secure red sweep, Trump taps hedge fund manager Scott Bessent for Treasury Secretary.
Wall Street expects a 25 basis point cut at the Federal Reserve’s (Fed) December meeting.
Cryptocurrencies surge in anticipation of a significant shift in federal policy.

U.S. markets kicked November off with a bullish reaction to a clear Trump/Republican election victory, amid robust macro data and corporate earnings. The S&P 500 posted its biggest monthly gain of 2024 with a 5.9% return and six more all-time highs. Small Cap soared with the Russell 2000 Small Cap Index up 11.0% in November, bringing the YTD return to 21.6%, still shy of the S&P 500’s 28.1% YTD return.

President-elect Trump made a series of appointments to his incoming administration with, in our view, the most important nomination of Scott Bessent as Treasury Secretary. Wall Street in general and Strategas Research in particular “applaud Trump for this pick.” Treasury’s importance is heightened because the U.S. is at an inflection point in terms of fiscal policy. The U.S.’ debt servicing cost is near the highest on record, true geopolitical threats are emerging for the Western world order for the first time since the Berlin Wall fell, $400bn of expiring tax cuts loom on January 1, 2026, new tax cut promises from the campaign need to be enacted, the debt ceiling needs to be raised, and Trump is demanding tariffs. Incoming Treasury Secretary Bessent must manage all these contradictory policies and goals, to not only avoid a U.S. recession, but also boost the U.S. economy, avoid a debt crisis, and lengthen the U.S. debt maturity schedule.

November Asset Class Performance

The 3Q earnings season is nearly done with broad contributions across sectors indicating that the U.S. equity market remains on solid fundamental ground. Earnings growth reached 8.9%, slightly ahead of estimates, and on the revenue side, growth was also strong at 5.3%. All eleven Global Industry Classification Standard (GICS) sectors posted gains in November, with Consumer Discretionary (+12.9%) and Financials (+10.5%) both up double digits. Health Care (+0.4%) and Materials (+1.5%) were the worst-performing sectors.

Growth slightly outperformed Value, with the Russell 1000 Growth up 6.5% in November (+32.2% YTD) vs. +6.4% for the Russell 1000 Value (+22.8% YTD). Over the last three years, the total return of the Large-cap Value index has lagged the total return of the Large-cap Growth Index by 9.4%. The Russell 2000 Index – the world’s most closely followed gauge of smaller companies – was up an impressive 11.0% in November, bringing the YTD return to +21.6%. The ESG segment of the market, as measured by the MSCI USA ESG Select Index, was up 6.4% in November, 50 basis points ahead of the S&P 500. Over the last three years, the ESG index is up 29.4% and 9.0% behind the S&P 500 on a total return basis. Non-U.S. equities did not benefit from the “Trump rally,” with EAFE and EM down 0.5% and 3.6%, respectively, for November. YTD, both EM and EAFE are now underperforming the S&P 500 by more than 20%.

The Core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of underlying inflation, accelerated in October from a year ago, helping explain policymakers’ more cautious approach to lowering interest rates. The price index for October, published on November 27, increased 2.8% year-on-year and 0.3% from a month earlier, according to Bureau of Economic Analysis data. Despite elevated inflation readings, the chance of a 25 basis points Fed rate cut on December 18 was 75% on December 2, with longer term inflation expectations remaining well-anchored.

Treasuries recovered in November despite the likelihood of higher for longer rates. The 10-year U.S. Treasury closed November 12 basis points narrower at 4.17% vs. 4.28% at the end of October, 3.88% at the end of December 2023, and from a peak of 4.99% in October 2023. Shorter-term 2-year U.S. Treasury closed 2 basis points lower on the month at 4.15% vs. 4.25% at the end of 2023. The 2-year and 10-year Treasury yield curve dis-inverted in September, and the 10-year yield is now just 2 basis points higher than the 2-year yield. The U.S. Aggregate bond index was up 1.7% in November, bringing the YTD return to 2.9%. The Municipal Bond Index was also up 1.7% in November and is up 2.5% YTD. U.S. Corporate Investment Grade and U.S. High Yield are now up 4.1% and 8.7% YTD, respectively.

Polls leading up to the U.S. presidential election proved off the mark, with the expected “too-close-to-call” election becoming a clear Trump victory on November 5. The initial market reaction to the election results was to post a broad relief rally, as the prospect of a prolonged battle over the election was avoided. President-elect Trump’s GOP will have a modest majority in both houses of Congress when he takes office in January; however, the requirements for a clear legislative mandate are unmet with less than the 60 Republican Senate seats required to overcome a filibuster and a razor-thin majority in the House.

Despite uncertainty over Trump policies – tariffs and deportations in particular – and the future trajectory of Fed funds and inflation, the VIX closed the month at 13.5, well below its post-GFC average of 18.5, in another sign of the complacently/bullishness in U.S. equity markets. Bond market volatility decreased in November, with the BofA MOVE index reaching 95.

The gold bull run finally came to an end with a -3.7% pullback in November, closing at $2,643 per ounce and still up +28.1% YTD, in line with U.S. Large-cap equities. Oil futures, as measured by the WTI Crude Oil $/bbl., were down 1.7% in November to $68/bbl. The U.S. Dollar Index, which indicates the general international value of the U.S. Dollar, strengthened by another 1.7% in November, and is now up 4.3% YTD. Bitcoin and Ethereum were up 38.5% and 47.8% in November as the crypto industry anticipated a significant shift in federal policy. President-elect Trump has pledged to be the most “pro-crypto president” and make the U.S. the “crypto capital of the planet.”

Chart of the Month – U.S. Breakeven Inflation, Market Measures

The U.S. breakeven inflation rate is a measure derived from the difference between the yields of nominal Treasury bonds and Treasury Inflation-Protected Securities (TIPS) of the same maturity. It reflects the market’s expectations for average inflation over the specified time horizon.

For example, if the yield on a 10-year nominal Treasury bond is 4.5% and the yield on a 10-year TIPS is 2.0%, the breakeven inflation rate would be 2.5%, suggesting that investors expect an average inflation rate of 2.5% per year over the next 10 years.

The U.S. breakeven inflation rate is a critical market indicator, as it provides real-time insights into inflation expectations and influences key financial and economic decisions. Policymakers and investors monitor it to assess whether inflation expectations are anchored around targets like the Fed’s 2% goal.

A sustained rise in breakeven inflation might signal overheating in the economy, prompting tighter monetary policy. A drop could indicate deflationary concerns, potentially leading to rate cuts and/or quantitative easing. The most important thing is for the Fed to maintain long-term inflation expectations near/below 2.5%.

Inflation expectations appear to remain well anchored – so far.

Chart of the Month - November 2024 — As of November 25, 2024, Source: Bloomberg, Beacon Pointe.

Quote of the Month

“Inflation is a way to take people’s wealth from them without having to openly raise taxes. It is the most universal tax of all.” – Thomas Sowell, American economist.

Major Asset Class Dashboard

Curated by Julien Frazzo, Deputy Chief Investment Officer and Michael G. Dow, CAIA, CFA®, Chief Investment Officer

Beacon ‘Pointe of View’ – A Market Update November 2024

Important Disclosure: The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances. This document has been prepared with the assistance of Microsoft Copilot, an AI-powered tool designed to enhance productivity and provide support in drafting, editing, and organizing content. Microsoft Copilot leverages advanced AI models to generate text based on user input. Although Copilot generates original content based on user input, there is a risk that the generated text may inadvertently resemble existing works that may not be properly cited.

December 2024

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