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The Nasdaq is leading the market this week
Major Index Performances (as of Wed):
- S&P 500: The benchmark index rose 0.71%
- Dow Jones Industrial Average: The Dow decreased (-.32%)
- Nasdaq Composite: The index is up 2.5%
- Gold: The Precious metal is flat
President Trump unleashes the Animal Spirits:
Reaction to President-elect Donald Trump’s policy agenda — tax cuts, spending cuts, tariffs, deregulation, and mass deportations — has dominated markets since the Nov. 5 election. Markets are celebrating the upcoming “changing of the guard”. We don’t expect key items to be enacted until late 2025 or 2026.
Trump inherits an economy on shaky ground, with a cooling labor market, elevated inflation, and restrictive monetary policy. His win immediately lifted business sentiment, stoking what John Maynard Keynes termed “animal spirits.” We expect the Federal Reserve to slow the rate-cut pace as they see reduced downside risks to the labor market. Nonetheless, we think jobs data have overstated labor-market strength over the last year, or so. What has been celebrated by the Biden administration as more than two million new jobs have been revised to show that the number is more likely closer to 800,000. The Fed’s slower pace of rate cuts will hopefully prompt a gradual rise in unemployment to 4.5% by end-2025, and 5% by end-2026.
Historically the honeymoon for a republican victory lasted six months. We believe unemployment will rise in the first quarter of next year, and if inflation reverses and begins to rise, market volatility could increase and create significant downside risk. This is part of our thesis for remaining slightly more conservative in our investment approach.
Interest Rate Decision:
Federal Chairman Jerome Powell is attempting to thread the needle in terms of the US economy. This week he boasted about how well the economy is doing, yet odds of the Fed lowering rates this month increased according to the Fed Watch tool used to gauge interest rate moves. It is an uncommon practice to lower interest rates during a robust economy. In our opinion, the Federal Reserve realizes the economy is weaker than portrayed. Hence their ongoing narrative of a soft landing. Maybe Jerome Powell will stick to the landing. However, it would be the first time any Fed chair has managed such a feat.
As the Holiday season continues, we hope you can take a moment to reflect on this year and enjoy the many blessings you have. Let’s not forget the true meaning of the season and why we celebrate this special time. We are thankful to be able to communicate with you and look forward to connecting each week.
Have a wonderful Weekend
Your portfolio management team.
