November 4, 2024
Good morning,
Last Thursday morning I suggested that the recent trend in equities would be challenged, and it was. I also suggested that a trend-breaking move would be muted ahead of the election – it was not. Thursday’s S&P 500 Index (SPX) decline (-1.86%) was the biggest one-day drop in months. As usual, it wasn’t just one factor that accounted for the fall. It was more like three: a negative reaction to increased AI-related CapEx forecasts from mega-cap tech giants MSFT and META (though the earnings reports were strong), continuously rising bond yields, and possibly a reduction in exposure to risk ahead of the upcoming elections. On the week, the SPX was off -1.37%, the second down week in a row, following six straight weeks of gains. The SPX is now off -2.5% from its 10/17 high. Equities do not seem to be too worried about Red or Blue.
Bond yields continued to rise last week, with the 10-year U.S. Treasury yielding 4.38% (up 14 bps on the week). The treasury market doesn’t seem to care who wins the election. It appears to be sending a message to whoever occupies the White House in January: get thy budget in order. If not, rising rates on long-term debt will cripple your administration’s economic growth. U.S.T. 10yr yields have gone from 3.6% to 4.4% in 6 weeks – that’s is not guessing Red or Blue; that is certitude that it doesn’t matter. That should have us all concerned long-term.
In the financial markets this morning, there seems to be doubts about a Trump victory, with some selling going on in the “Trump trades” and, in particular, weakness in the U.S. dollar. Polls seem to be getting tighter by the hour.
Fed meeting this Thursday. Markets expect a 97% chance of a 25 bps cut.
Prepare for a week of great theatre, if nothing else.
Be well,
Mike
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