Economy
In October 2024, the US economy continued to show resilience to high interest rates and geopolitical uncertainty, growing even above the Fed’s estimate of its potential growth of 2%. The Personal Consumption Expenditure (PCE) price index, a key measure of inflation, dropped to 2.09% year-over-year in September, aligning closely with the Federal Reserve’s target of 2%. The employment report was impacted by the hurricanes and strikes in October, but still, the unemployment rate remained steady at 4.1%, reflecting a stable labor market when one looks through the one-time impacts. Initial unemployment claims fluctuated due to hurricanes and strikes as well but ended the month at a solid 227,000. 3rd quarter GDP came in at a 2.8% annual growth rate, driven by consumption growth of 3.7% and despite a .2% drag from inventory depletion. The Federal Reserve, having cut the federal funds rate by 50 basis points in September, maintained a cautious stance in October. After the meeting and during inter-month comments, Federal Reserve Chair Jerome Powell and other officials, including Governor Christopher Waller, adopted a cautious tone towards further rate decreases, emphasizing the importance of closely monitoring incoming data. Powell noted that the economy is on solid footing, with inflation nearing the Fed’s target and employment levels stable. Waller highlighted the need for gradual rate reductions to support continued economic growth without overheating the market. Despite cautious Fed speech, we think that recent economic data should keep the Fed on track to lower rates two more times this year.
Markets
U.S. equity markets ended October bracing themselves for more employment numbers, the upcoming Presidential election, and a Fed rate decision in what will be a very consequential month of November for the markets. The S&P 500 declined by 1% for the month, although large caps outpaced their small-cap peers. On the back of strong earnings and the steepening of the yield curve, financials led among large-cap sectors up 3%, while materials and healthcare lagged due to disappointing earnings at HMOs and large pharmaceutical companies. A solid 3Q earnings season, albeit negatively impacted by a few impactful, high-profile losses from the likes of Boeing, is contributing to diverse stock performance and the broader uptick in equities. Banks delivered strong results and an encouraging outlook as they negotiated rates, M&A, and a recovering new issuance market. Many consumer stocks also delivered on earnings, particularly consumer discretionary stocks like hotels and internet travel. Helping to support returns this month is, of course, the market-friendly combination of a Fed rate-cutting cycle coming alongside a still-strong economy, as we discussed above. Overall, a 2.5-3% % GDP growth economy with 2-2.5% inflation in a central bank rate-cutting cycle makes for a pretty attractive backdrop for both equities and bonds. As we go into the final 2 months of the year, the S&P 500 has already gained 20% for the year and could be set up for more gains if we indeed get the post-election rally that is typical in election years.
Wealth Planning
The Internal Revenue Service just announced the adjustments to the lifetime and annual exclusions for estates and gifts. The lifetime exclusion for an individual to transfer to heirs will be $13,990,000 before there would be any estate or gift tax. This is up from $13,610,000. Married couples would get $27,980,000.
The annual use it or lose it gift exclusion increases to $19,000 per year per person. This is up from $18,000. As long as the gift stays at or below $19,000 next year, the gift does not reduce your lifetime exemption. Spouses will be able to gift $38,000 to each child, grandchild, etc.
Please note that the lifetime exclusion will reduce by about ½ in 2026. I would estimate it to be around $7,000,000. There are no plans to reduce the annual “use it or lose it” gift exclusion.nd, we will sell out of the fund before the declared dividend date. This results in a smaller tax bite for you.
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