Equities fell last week (S&P 500 -1.35%), marking the second weekly decline in a row. Large technology was the drag, with Treasury yields continuing to rise. Best sectors were communication services (+1.53%) and consumer discretionary (+0.48%); worst sectors were technology (-3.27%) and real estate (-3.05%).
Key Takeaways:
- Real GDP in 3Q was solid, growing 2.8% q/q versus 3.0% in Q2. Nominal GDP slowed to 4.7% from 5.6%. Government spending alone added 0.9%, meaning private real GDP growth was only 1.9% (too much growth is being driven by the public sector).
- The Fed's preferred measure of inflation (core PCE) met expectations of a reacceleration to +0.3% m/m and +2.7% y/y.
- In a somewhat confusing monthly jobs report, only 12,000 jobs were added in October (the worst report in four years), with the weakness due to the impact of the hurricanes and labor strikes. (Prior two months were revised down by 112,000.) The unemployment rate held steady at 4.1% with average hourly earnings up 0.4%.
- In October, the Conference Board's Consumer Confidence index jumped 9.5 points to 108.7, the highest level since January.
- The latest Federal Reserve Beige Book reveals a U.S. economy that is largely stagnant since early September, with only two districts reporting modest growth.
- The large fiscal transfers from Congress to middle- and working-class households had a longer impact than we expected. With that impact lessening, we are likely to witness an economic slowdown.
- Consensus S&P 500 EPS growth estimates continue to move lower for both 2024 and 2025. Estimates for 2024 have dropped to $239 (up 8.7% from y/y, not the double-digit percentage that was anticipated for so long) and $275 for 2025.
- After ignoring the nominal seasonal headwinds so far this fall, the stock market finally seems to be feeling the effects of overbought signals, signs of complacency and bullish sentiment.
- Valuation levels (P/E ratios) are not very helpful in determining short or intermediate term returns, but are very useful in predicting long-term returns. Recent work by BCA and Goldman Sachs (and earlier in our white paper) speak to likely sub-par long-term returns (3-5%, including dividends) for equities.
- A Trump win would probably be positive for financials as the market anticipates less financial regulation, further economic growth, and a steepening yield curve.
Source: Bob Doll Crossmark Investments CEO
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.
Sincerely,
Fortem Financial
(760) 206-8500
team@fortemfin.com
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