11/15/24: Markets Cool After Post-Election Rally

After last week’s sharp post-election rally, financial markets cooled as investors absorbed Federal Reserve Chair Jerome Powell’s remarks and fresh economic data. The 2-year Treasury yield rose to 4.30%, while the 10-year ended the week at 4.43%, increasing 5 and 13 basis points, respectively. The U.S. dollar eased slightly from two-year highs but stayed on track for its seventh weekly gain, while equities pulled back, with the S&P 500 slipping 2.1% as markets digested Federal Reserve Chair Jerome Powel’s measured tone and awaited additional economic indicators.

Federal Reserve Chair Jerome Powell pointed to the strength of the U.S. economy this week, citing steady growth and a strong labor market as key factors guiding the central bank’s cautious monetary policy. Powell expressed optimism about the Fed’s progress toward sustainable price stability, noting continued signs of moderation as inflation remains above the 2% target. His comments emphasized the need to maintain economic stability while navigating persistent price pressures.

October’s retail sales numbers presented a mixed picture of consumer behavior, rising 0.4% from the previous month on the strength of auto purchases and solid gains in electronics and appliances, according to the U.S. Census Bureau. E-commerce showed moderate growth, driven by early holiday promotions. Year-over-year, retail sales increased 2.8%, signaling resilient consumer spending. Revised September data revealed a stronger-than-expected 0.8% monthly gain, suggesting shoppers entered the holiday season with momentum. However, control-group sales, which exclude food services, autos, building materials, and gasoline, dipped 0.1% month-over-month, highlighting some weakness in inflation-adjusted spending.

Inflation data painted a mixed picture. The core Consumer Price Index (CPI), which excludes food and energy, rose 0.3% in October and 3.3% from a year earlier, according to the Bureau of Labor Statistics. Overall CPI increased 0.2% for the month and 2.6% year-over-year, driven by rising shelter and used car costs. Meanwhile, producer prices mirrored these trends, rising 0.2% from the prior month and 2.4% over the past year. This data suggests inflationary pressures persist but are easing in some categories.

Looking ahead, investors are focused on holiday sales and earnings reports from major retailers like Walmart and Target for clues to consumer resilience. Black Friday and Cyber Monday will provide critical insights into household spending amid lingering inflation pressures. Powell’s balanced tone underscores the Fed’s commitment to managing inflation while fostering steady economic growth, offering a clear but cautious path forward for monetary policy.

Next week: NAHB Housing Market, Housing Starts, Building Permits, Philadelphia Fed Business Outlook, Initial Jobless Claims, Continuing Claims, Leading Indicators, Existing Home Sales, Kansas City Fed Manf. Activity, S&P Global US Manufacturing Purchasing Managers index (PMI), S&P Global US Services Purchasing Managers index (PMI), University of Michigan Sentiment                                              

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