Investment Commentary | November 2024

November provided investors with reasons to give thanks.

Unlike 2022 and 2023 when the large cap index was bouncing off lows set in October, the S&P 500 has had strong returns all year. The outcome of the US election and the second interest rate cut from the Federal Reserve were the main drivers of performance. While pundits have expressed concerns regarding tariffs, immigration, and potential increases in the deficit, investors shrugged these off to focus on lower taxes and reduced regulations, powering the S&P 500 5.87% higher for the month.

Optimism in the stock market is alive and well, even at elevated valuations.

Given the economic struggles most of the world is experiencing, the US seems to stand apart as one of the few places to invest with confidence. S&P 500 companies have had solid earnings, with 75% of companies beating analyst’s expectations. This is a little lower than last quarter and the five-year average, but on par with the 10-year average.

From a sector perspective, Financials are leading all eleven S&P sectors for the year, up 38.06%. While Tech and Communications are not far behind, neither are Utilities. Only one sector of the market, Healthcare, has not provided double digit returns this year. The broadening returns is a sign of health in the market, providing momentum.

The small- and mid-cap index fared even better than large-cap stocks, with the S&P Mid-Cap and Small-Cap indexes up 8.81% and 10.94%. We have been noting for months that these smaller companies would be beneficiaries of lower interest rates. The potential combination of lower rates, deregulation, and lower taxes made these stocks too difficult for investors to ignore, benefiting our positions.

Foreign stocks did not have the stellar month their US counterparts experienced.

Developed and Emerging Markets indexes such as the S&P Developed Ex-US BMI and the S&P Emerging BMI, returned 0.11% and -2.77%, respectively. Several concerns conspired to push these markets lower; the strength of the dollar, tariff induced trade wars, continued weakness in Europe and China, and potential interest rate increases in Japan.

We continue to highlight weakness in the German economy as a particular indicator of the trouble facing Europe. German car manufacturers are under direct threat from Chinese counterparts, and with regulations squeezing much of Europe, there really doesn’t seem to be a positive catalyst to move the markets up in Europe.

China has been in a cycle of hope for big stimulus, announcements of stimulus, and then the market being disappointed by the stimulus offered. The cumulative efforts of the stimulus will certainly add up, but may not be enough to overcome some of the structural issues facing China. A potential trade war with the US will not help matters, and recent overtures by the Chinese government to reframe the US/Chinese relationship are unlikely to change anything in the next few months.

Fixed income posts gains, Fed eases rates, and platinum presents a unique opportunity.

Fixed Income ended the month positively, up 0.63% based on the S&P US Aggregate Index, although, the ride was not smooth. After the election results came into focus, the rate on 10-year Treasury bonds jumped between the 5^th and 6^th from 4.26% to 4.42%. The increase in rates was due to concerns about potential increases in the deficit. However, the 10-year rate ended the month lower at 4.18%. The decrease has been attributed to the nomination of Scott Bessent as Treasury Secretary and the idea of Elon Musk and Vivek Ramaswamy cutting $2 trillion from the federal budget.

The Federal Reserve cut short term rates by 0.25%, the second rate cut of this cycle. Given the strength of economic data coming in with no significant changes in the unemployment rate, it is becoming more likely that the Fed will slow the pace of rate cuts going forward, potentially pausing in December or January. Even with rate cuts, short-term yields are above 4%, which continues to be attractive to savers.

Precious metals were down 3.30% based on the S&P GSCI Precious Metals Index. A cool down of tensions in the Middle East and strengthening of the dollar pushed the metals down. We have added platinum to our holdings of precious metals. Platinum fell significantly in 2008-2009, staged a bit of a comeback in 2010 and 2011, but trended downward before leveling off in 2015. The price sits at around $950 per ounce, which is much lower than the $2600 per ounce for gold. The disparity in the price between gold and platinum has hit the largest gap in the past ten years, making platinum relatively affordable.

Turkey and gravy weren’t the only things to cheer about for investors during November, as the returns in most asset classes gave sentiment a lift heading into the holiday season.

Investment commentary by Jason Flores, CFA, CAIA – Executive Vice President & Chief Investment Officer at Central Trust Company.

At Central Trust Company, we continue to reassess the rapidly changing investment landscape for both risks and opportunities. If you would like to access our full monthly outlook and additional investment commentary, visit our Investments Learning Center. As always, if you have questions or concerns, please contact your Central Trust Company team. We are always ready to help.