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Uncertainty Transformed. · ANGLES.

• 0:01
  SPEAKER_00: Uncertainty transformed my weekly market review November 17th, 2024.
• 0:07
  SPEAKER_00: The bond market was closed on Monday for Veterans Day,
• 0:10
  SPEAKER_00: but the stock market was up and running and squeaked out a tiny further extension
• 0:15
  SPEAKER_00: of its winning streak on light trading volume with small caps leading and tech and
• 0:20
  SPEAKER_00: AI lagging.
• 0:22
  SPEAKER_00: The slight gain was enough,
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  SPEAKER_00: however,
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  SPEAKER_00: to achieve a first ever S&P 500 close above the 6,000 level,
• 0:29
  SPEAKER_00: just 263 days after first breaking through 5,000,
• 0:33
  SPEAKER_00: and the first ever Dow Jones Industrial Average close above 44,000.
• 0:40
  SPEAKER_00: Election outcome uncertainty transformed into policy uncertainty as Trump began to
• 0:45
  SPEAKER_00: show his hand with cabinet appointments.
• 0:49
  SPEAKER_00: The election-fueled rally finally cooled on Tuesday as stocks ran out of steam,
• 0:54
  SPEAKER_00: easing lower with small caps in particular giving back a chunk of their recent gains.
• 1:00
  SPEAKER_00: Things were not helped when bond traders returned from their long weekend and
• 1:04
  SPEAKER_00: proceeded to spike interest rates and send bond prices spiraling lower on the back
• 1:10
  SPEAKER_00: of concerns that many of Trump's proposed policies,
• 1:13
  SPEAKER_00: ranging from tariffs to mass deportations,
• 1:16
  SPEAKER_00: will simply stoke higher inflation and a possible resulting slowdown in the rate
• 1:21
  SPEAKER_00: cutting cycle.
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  SPEAKER_00: Before the open on Wednesday,
• 1:25
  SPEAKER_00: we got the latest Consumer Price Index,
• 1:27
  SPEAKER_00: CPI,
• 1:28
  SPEAKER_00: measure of retail inflation,
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  SPEAKER_00: which came in exactly as expected,
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  SPEAKER_00: up 0.2% for the month of October and an annualized rate of 2.6%.
• 1:37
  SPEAKER_00: Wall Street is tending to treat as expected inflation numbers with some relief
• 1:43
  SPEAKER_00: these days as they keep stock-friendly interest rate cut hopes alive and prices
• 1:49
  SPEAKER_00: opened in the green before pulling back to close unchanged for the session.
• 1:54
  SPEAKER_00: The tech and AI sector once again struggled to keep up with the performance of the rest of the market.
• 2:00
  SPEAKER_00: Wednesday also saw the largely predicted final confirmation of a Republican clean
• 2:07
  SPEAKER_00: sweep as the party officially retained control of the House of Representatives to
• 2:11
  SPEAKER_00: add to the presidency and the Senate.
• 2:15
  SPEAKER_00: Thursday began with the release of CPI's baby brother,
• 2:18
  SPEAKER_00: the Producer Price Index,
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  SPEAKER_00: PPI,
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  SPEAKER_00: measure of wholesale inflation experienced by manufacturers,
• 2:25
  SPEAKER_00: which often foreshadows what consumers will pay in the future.
• 2:30
  SPEAKER_00: It rose by a smidge more than anticipated, up 0.2% in October and 2.4% annualized.
• 2:39
  SPEAKER_00: Stocks initially responded positively,
• 2:41
  SPEAKER_00: shifting higher at the open,
• 2:43
  SPEAKER_00: but then abruptly changed direction to finish the day in the red again.
• 2:47
  SPEAKER_00: The sudden decline could mostly be put down to the Fed Chairman Jerome Powell
• 2:52
  SPEAKER_00: catching Wall Street off guard by telling business leaders in Dallas that the U.S.
• 2:57
  SPEAKER_00: economy is not sending any signal that we need to be in a hurry to lower rates,
• 3:04
  SPEAKER_00: and that the central bank's interest rate cutting process could be on the verge of a pause.
• 3:13
  SPEAKER_00: Also unsettling investors were concerns about the possible impact of some of
• 3:18
  SPEAKER_00: Trump's often head-scratching cabinet picks and Musk's growing role in policymaking.
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  SPEAKER_00: For example,
• 3:25
  SPEAKER_00: healthcare stocks plummeted on Thursday when it became clear that the
• 3:29
  SPEAKER_00: president-elect had tapped vaccine skeptic and all-round strange person,
• 3:35
  SPEAKER_00: Robert Kennedy,
• 3:36
  SPEAKER_00: to head up the Department of Health and Human Services.
• 3:40
  SPEAKER_00: Despite a pre-market release of some very healthy retail sales numbers,
• 3:44
  SPEAKER_00: the reversal lower in stock prices resumed on Friday with the recurring pattern of
• 3:50
  SPEAKER_00: stumbling tech and AI.
• 3:53
  SPEAKER_00: Losses intensified as the day went on,
• 3:55
  SPEAKER_00: as bonds fell hard again on higher interest rates and the massacre continued in the
• 4:01
  SPEAKER_00: healthcare sector as a result of the Kennedy pick.
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  SPEAKER_00: A tough week ended on a very sour note.
• 4:09
  SPEAKER_00: Whenever the market makes a dramatic move,
• 4:11
  SPEAKER_00: such as the one we saw in the wake of the election,
• 4:14
  SPEAKER_00: it is always good practice to step back and at least consider certain scenarios
• 4:19
  SPEAKER_00: that could play out that are different from the consensus outlook.
• 4:24
  SPEAKER_00: 5% plus weekly moves up in stock prices generally tend to occur when the market
• 4:30
  SPEAKER_00: outlook is uncertain,
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  SPEAKER_00: trader conviction is low,
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  SPEAKER_00: and investors are far more worried about missing out on additional upside and far
• 4:39
  SPEAKER_00: less focused on capital preservation.
• 4:42
  SPEAKER_00: There are market risks to the pro-growth agenda and proposed policies of the incoming administration.
• 4:49
  SPEAKER_00: Do we take Trump literally in what he says he's going to do,
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  SPEAKER_00: particularly in the area of tariff impositions,
• 4:56
  SPEAKER_00: deportations,
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  SPEAKER_00: and powers given to his recently announced Musk-Ramaswamy-led Department of
• 5:03
  SPEAKER_00: Government efficiency?
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  SPEAKER_00: Or is this just indicative of simply a broad direction of travel?
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  SPEAKER_00: If the Republicans' radical growth plan threatens to further balloon the deficit,
• 5:16
  SPEAKER_00: then the bond market taking interest rates substantially higher and crashing bond
• 5:21
  SPEAKER_00: prices will inject significant volatility no matter what any economic growth
• 5:26
  SPEAKER_00: actually ends up looking like.
• 5:30
  SPEAKER_00: Higher yields in fixed income always suck capital from equities and make stocks
• 5:35
  SPEAKER_00: less attractive on a risk-adjusted basis relative to the deemed safer alternative
• 5:40
  SPEAKER_00: of bonds.
• 5:42
  SPEAKER_00: The tailwinds provided by the vibrant economy may cause the Fed to slow the pace of interest rate cuts.
• 5:49
  SPEAKER_00: And markets have priced in two or three quarter point reductions over the course of 10 meetings in 2025.
• 5:56
  SPEAKER_00: That's a lot of pauses where the central bank simply sits on its hands and does nothing.
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  SPEAKER_00: Right now, Wall Street seems to be just about at peace with that.
• 6:06
  SPEAKER_00: But if the Fed is seen to row back a bit on even those cuts,
• 6:10
  SPEAKER_00: that is going to strongly disappoint markets and likely throw a wrench into any stock market rally.
• 6:17
  SPEAKER_00: Economically speaking, 2024 has been a perfect storm in a good way.
• 6:22
  SPEAKER_00: Everything went right.
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  SPEAKER_00: But what that means is going into 2025,
• 6:26
  SPEAKER_00: we are riding the crest of a wave and that while things can definitely still remain positive,
• 6:35
  SPEAKER_00: it's not going to be easy to build much further on that and get meaningfully better.