Unadorned Notes: November 22-26, 2024
Fed Divided on Future Rate Cuts; Consumer Confidence Climbs; Business Activity Surges; S&P 500 Forecasts Strong Gains; Trump Announces Sweeping Tariffs
Economics, Finance, and Business
Fed Divided on Future Rate Cuts: Federal Reserve officials expressed uncertainty over the extent of future rate cuts during their November 2024 meeting, citing mixed economic signals and volatile data. The Fed reduced its benchmark interest rate to 4.50%-4.75%, with officials debating whether policy was already near the neutral level. While some participants supported gradual easing due to controlled inflation and economic strength, others argued for caution amid potential inflation risks. Public commentary following the meeting revealed divisions, with Fed Chair Jerome Powell emphasizing data-driven decisions and careful adjustments. Market expectations for further rate cuts in December 2024 remain uncertain.1
Single-Family House Prices Climb: U.S. single-family house prices increased 0.7% in September 2024, following an upwardly revised 0.4% rise in August 2024, according to the Federal Housing Finance Agency. Prices rose 4.4% year-over-year, although the pace of growth slowed to a 2.86% annualized rate in the third quarter from 3.76% in the second quarter. Mortgage rates, influenced by rising U.S. Treasury yields, have climbed back to nearly 7%, erasing earlier declines. Regional gains varied, with the Middle Atlantic region seeing the strongest annual growth, while the West South Central region reported no monthly change. Higher home prices and rising mortgage rates are further constraining affordability for prospective buyers.2
Consumer Confidence Climbs: U.S. consumer confidence rose to a 16-month high in November 2024, with the Conference Board’s index reaching 111.7, driven by optimism over the labor market and lower inflation expectations. Younger consumers and those across most income brackets reported higher sentiment, while optimism about stock prices hit a record 56.4%. Inflation expectations eased to 4.9%, the lowest since March 2020, though concerns over high prices remain prominent. Housing demand weakened due to rising mortgage rates, with new home sales falling 17.3% in October 2024 to their lowest level since December 2022. Analysts expect robust labor market optimism to support consumer spending into 2024 despite lingering inflation and housing pressures.3
Business Activity Surges: U.S. business activity reached a 31-month high in November 2024, with S&P Global’s Composite PMI Output Index rising to 55.3 from 54.1 in October 2024, driven by optimism over potential pro-business policies and lower interest rates. The services sector led the increase, while manufacturing showed signs of stabilization. Input price growth slowed, and price resistance from consumers led to a drop in prices charged, suggesting potential for further declines in inflation. Despite rising confidence, businesses were cautious about hiring, with employment in the services sector declining but stabilizing in manufacturing.4
S&P 500 Forecasts Strong Gains: The S&P 500 is expected to rise 8.5% by the end of 2025, reaching 6,500 points, as lower interest rates and deregulation under President-elect Donald Trump bolster markets, according to a Reuters poll. Earnings growth for the index is projected to accelerate to 14.2% in 2025, supported by a strong U.S. economy and gains in financial and technology sectors. This year’s rally, fueled by AI-driven tech stocks like Nvidia and Microsoft, has pushed the S&P 500 up 26% so far in 2024. Valuations remain elevated at 22.6 times expected earnings, but analysts are optimistic given the anticipated growth. Risks include inflationary pressures from Trump’s proposed tariffs and geopolitical instability in the Middle East, which could disrupt markets.5
Small-Cap Stocks Poised to Surge: Small-cap stocks are expected to outperform as market focus broadens beyond mega-cap tech names, according to Francis Gannon of Royce Investment Partners. Historically, small-cap stocks have excelled after periods of market concentration, with current trends in deglobalization and U.S. re-industrialization providing additional tailwinds. The Russell 2000 has begun outperforming larger indices like the S&P 500 and Nasdaq following the U.S. election, despite recent earnings struggles tied to recession fears. Falling interest rates are set to benefit small caps, particularly those with floating-rate debt, which makes up 40% of the Russell 2000.6
Fintech Collapse Wipes Out Savings: Thousands of Americans lost access to their savings after the fintech intermediary Synapse collapsed, with up to $96 million in customer funds unaccounted for. Synapse, which partnered with fintech startups like Yotta to connect users with banks, shut down systems in May 2024 following disputes with Evolve Bank & Trust. Despite claims that deposits were FDIC-insured, customers are receiving only partial payouts, with some losing nearly all their funds. Regulatory agencies, including the FDIC and Federal Reserve, have declined to intervene, citing limits on protections for nonbank intermediaries. Legal disputes and the absence of a full accounting have left many victims without recourse, as banks involved in the process continue to dispute responsibility.7
U.S. Politics, Policies, and Geopolitics
Trump Announces Sweeping Tariffs: President-elect Donald Trump pledged to impose tariffs of 25% on goods from Mexico and Canada and an additional 10% on Chinese imports, citing efforts to combat drug trafficking and illegal immigration. The proposed tariffs, which violate USMCA trade commitments, have drawn backlash from affected nations and business leaders, with Mexico and Canada threatening retaliatory measures. Economists warn the tariffs could disrupt supply chains, increase consumer prices, and cost U.S. households nearly $1,000 annually. Markets showed mixed reactions, with the U.S. dollar strengthening against the peso and Canadian dollar, but concerns remain over broader economic consequences.8
Scott Bessent Named Treasury Secretary: President-elect Donald Trump has nominated hedge fund executive Scott Bessent as treasury secretary, citing his support for Trump’s “America First” economic agenda. Bessent, a former George Soros associate, is expected to oversee trade policy, tax reforms, financial regulation, and sanctions, pending Senate confirmation. His nomination followed a contentious selection process, with other candidates like Howard Lutnick and Marc Rowan considered but ultimately rejected. Bessent’s tenure will likely focus on implementing Trump’s ambitious fiscal plans, including significant tax cuts and tariffs, despite concerns about their potential economic repercussions. If confirmed, Bessent will become the first openly gay treasury secretary in U.S. history.9
Musk, Ramaswamy Target Federal Cuts: Elon Musk and Vivek Ramaswamy, co-leads of the Department of Government Efficiency (DOGE), plan to reduce federal spending by $2 trillion, targeting agencies like the Department of Education, IRS, and NASA. Proposed measures include large-scale layoffs, relocating federal agencies, and defunding programs deemed unauthorized by Congress. GOP lawmakers supporting the effort, including Senator Joni Ernst, have suggested additional cost-saving ideas, such as reducing government waste and altering coin production. The deadline for implementing the proposed cuts is July 4, 2026, though Musk has indicated a faster timeline.10
Israel-Hezbollah Cease-Fire Reached: Israel and Hezbollah agreed to a cease-fire, effective Wednesday at 4 a.m. local time, following U.S.-led mediation to end over a year of hostilities. The deal requires Hezbollah to retreat north of the Litani River as Israeli troops gradually withdraw over 60 days, with Lebanese forces and UN peacekeepers securing the area. Israeli Prime Minister Benjamin Netanyahu emphasized Israel’s right to self-defense, while Hezbollah expressed skepticism over Israel’s intentions. The cease-fire comes after intense fighting on Tuesday, which saw airstrikes on Lebanon and Hezbollah rocket attacks on Israel. The agreement is viewed as a potential framework for future negotiations in Gaza, where tens of thousands have been killed.11
COP29 Secures Climate Finance Deal: Countries at COP29 agreed on a $300 billion annual climate finance target by 2035 to help developing nations adapt to climate change, though it falls short of the $1.3 trillion requested. The funds aim to support clean energy transitions, disaster preparedness, and resilience measures in vulnerable communities. Negotiations were contentious, with geopolitical tensions, disorganized leadership, and diverging priorities among nations complicating the process. Critics, including activists and some delegates, deemed the agreement flawed, while others view it as a step toward meeting global climate goals under the Paris Agreement. The deal replaces a 15-year-old $100 billion annual pledge and will rely on both public and private funding sources.12