• Equities markets were mostly down for the week with the exception of technology, as the S&P 500, Dow, and Russell 2000 fell, while the Nasdaq moved higher. Treasuries also fell last week as yields moved up slightly. The 10Y is at 4.37% as of this writing. The final Fed meeting of the year takes place on Wednesday, with markets pricing in another -25 bps cut, marking a total of -100 bps of easing in 2024. This week’s FOMC meeting will also be accompanied by an update to the Fed’s summary projections, guiding the Fed’s economic and rate expectations for the year ahead. With 2024 nearly over, it has been an excellent one for equities, with all major indices up by double digits, led by the Nasdaq. Bonds have also turned in a solid year, led by high-yield bonds posting nearly 9% total return.

• Looking ahead into 2025, the U.S. economy remains on solid footing for now, although we are cautious that the strongly positive equity market returns of the past two years can be repeated again next year. GDP Now from the Atlanta Fed shows macro data indicators climbing strongly, especially since the election, while official consensus has lagged.

• Looking globally, the ECB cut rates last week by -25 bps to 3.15% (main refinancing rate), while the Bank of England is expected to hold steady this week at 4.75%. The Bank of Japan is forecast to hold rates steady at 0.25% but may hint at a hike in 2025. In LatAm, the central banks of Mexico, Chile, and Colombia all meet this week. Chile may cut by -25 bps to 5.0%, Colombia by -50 bps to 9.25%, and Mexico by -25 bps to 10.0%. 
• November CPI was largely as expected. Headline CPI rose by 0.3% MoM and 2.7% YoY, both in line with consensus and up slightly from October. On a core basis, CPI was steady at 0.3% MoM and 3.3% YoY, also as expected.

• PPI for November rose by 0.4% MoM (vs. 0.2% est. and 0.3% revised), and 0.2% MoM excluding the volatile food and energy categories (0.2% est., 0.3% prior). On a YoY basis, PPI was up 3.0% (2.6% est., 2.6% revised) and up 3.4% excluding food and energy (3.2% est., 3.4% prior). These numbers indicate that inflation remains sticky.

• In earnings, Broadcom (AVGO) was the positive highlight as the company posted in-line results, but with positive guidance on an optimistic forecast for its AI chips. Meanwhile, Oracle (ORCL) and Adobe (ADBE) disappointed investors with lukewarm guidance. Most equity sectors fell on the week.

• In corporate news, Alphabet (GOOGL) shares soared after the company disclosed its Willow quantum chip reached a milestone in quantum computing, demonstrating the company is at the forefront of that technology. Nvidia (NVDA) shares faced pressure after Chinese regulators were said to be investigating the company for Anti-Monopolistic practices. Apple (APPL) was reportedly developing in-house Fi chips with Taiwan Semi (TSM). General Motors (GM) disclosed it will terminate its self-driving robotaxi division Cruise a move that led Uber (UBER) and Lyft (LYFT) shares to sell-off, while sending Tesla (TSLA) shares higher. Boeing (BA) announced it restarted production on the suspended 737 Max Jet lines.
• In M&A, U.S. Steel (X) shares sold off on reports the Biden administration plans to formally block Nippon Steel’s acquisition of the American steelmaker, Walgreens (WBA) shares rose on press reports that Sycamore Partners is looking to take the company private, Hershey (HSY) turned down a preliminary acquisition bid by rival Mondelez (MDLZ), and Kroger (KR) saw it acquisition of rival Albertson (ACI) blocked by a federal judge.
• In index news, rebalancing to the Nasdaq 100 includes the addition of Palantir (PLTR), MicroStrategy (MSTR), and Axon (AXON), and removals of Moderna (MRNA), Illumina (ILMN), and Super Micro (SMCI).

The Week Ahead

• For the week ahead, the FOMC will hold its final meeting of 2024. Markets are pricing in a 97% chance of a -25 bps cut to a target Fed funds rate of 425-450 bps.

• On Tuesday, we get November advance retail sales. Advance retail sales are expected to climb by 0.5% MoM, while rising 0.4% excluding the volatile auto and gas categories. Both would be higher on a sequential basis, showing ongoing strength in consumer spending.

• On Friday, after the FOMC meeting takes place, we get an update to PCE data. Core PCE, which is the Fed’s target inflation metric, is expected to climb by 0.2% MoM, compared to 0.3% in October. On a YoY basis, it is expected to rise by 2.9%, compared to 2.8% in October.

• In earnings, General Mills (GIS), Micron (MU), CarMax (KMX), Cintas (CTAS), Conagra (CAG), Darden (DRI), FedEx (FDX), Nike (NKE) and Carnival Cruises (CCL) are among companies set to report.

Market Summary – Returns and Yields

• For the year-to-date, equities were up globally, with the sole exception of Brazil. Fixed income total returns were also positive, except on the long end. Gold rallied nearly 30% this year while oil fell slightly.

For additional insights, be sure to check out last week’s blog post.

Definitions, sources, and disclaimers

This content is being published by Amerant Investments, Inc (Amerant Investments), a dually registered broker-dealer and investment adviser registered with the Securities and Exchange Commission (SEC) and member of FINRA/SIPC. Registration does not imply a certain level of skill, endorsement, or approval. Amerant Investments is an affiliate of Amerant Bank.

Definitions:

• Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
• GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
• The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
• Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
• The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
• The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
• Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
• Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
• The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
• The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Not FDIC Insured | Not Bank Guaranteed | May Lose Value | Not Insured By Governmental Agencies | Member FINRA/SIPC, Registered Investment Advisor