Monthly Economic Update November 2024
Chris Polimeni, MBA presents:?
Monthly Economic Update November 2024
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As a financial advisor, I want to share with you some of the key economic developments that occurred in the last month. Here are some of the highlights:?
Q3 U.S. gross domestic product increased at a 2.8% annualized rate, according to the Commerce Department's advance estimate of third-quarter GDP, slightly below economists forecast of 3.0% growth.
Core Personal Consumption Expenditure rose 2.2% versus the 2.1% forecast.
"For the market, the stronger pace of GDP being paced by personal consumption doesn't really make the case for the Fed cutting (interest rates) at all," said Marc Ostwald, chief economist and global strategist at ADM Investor Services International.
The neck-and-neck race between U.S. presidential candidates Kamala Harris and Donald Trump was also at the top of investors' minds ahead of the Nov. 5 election.
"We may have some revisions when we go forward, but all that really matters is the election next week, because that could be quite pivotal in the direction that the U.S. takes above all," Ostwald said.
Also, U.S. private payrolls growth surged by a higher-than-expected 233,000 jobs in October.
Tuesday's data showed U.S. job openings dropped to more than a three-and-a-half-year low in September, leading traders to increase bets on a 25-basis-point rate cut in the Federal Reserve's November and December meetings. Economists polled by Reuters echoed the view.1
GDP is a crucial economic indicator that can significantly impact the stock market. A strong and growing GDP generally signals a healthy economy, which can lead to a bull market.
Here's how GDP can influence the stock market:
Corporate Earnings: A strong GDP indicates robust economic activity, leading to increased consumer spending and business investment. This can boost corporate earnings, which in turn can drive stock prices higher.
Interest Rates: Central banks often adjust interest rates to influence economic growth. When the economy is strong, central banks may raise interest rates to prevent inflation. However, gradual rate hikes are generally less disruptive to the market than rapid increases.
Investor Sentiment: A strong GDP can improve investor sentiment, as it signals optimism about future economic growth. This can lead to increased demand for stocks, which can push prices higher.
Currency Exchange Rates: A strong GDP can strengthen a country's currency, which can impact the performance of companies that do business internationally.
While GDP is an important factor, it's not the only one that influences the stock market. Other factors, such as geopolitical events, industry trends, and company-specific news, can also play a significant role.
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TIP OF THE MONTH
Conquer self above all else-- self-mastery is an essential prerequisite for success in all other areas of life.
US consumer confidence rebounds in October. U.S. consumer confidence increased to a nine-month high in October amid improved perceptions of the labor market.
The Conference Board said on Tuesday its consumer confidence index rose to 108.7 this month from an upwardly revised 99.2 in September. Economists polled by Reuters had forecast the index climbing to 99.5 from the previously reported 98.7.
"Consumer confidence recorded the strongest monthly gain since March 2021, but still did not break free of the narrow range that has prevailed over the past two years," said Dana Peterson, the chief economist at the Conference Board.
The share of consumers who viewed jobs as being "plentiful" rose to 35.1% from 31.3% in September. Some 16.8% of consumers said jobs were "hard to get," down from 18.6% last month.2
Consumer confidence plays a crucial role in the US economy. It reflects how optimistic or pessimistic consumers are about the future economic conditions. When consumer confidence is high:
Increased spending: Consumers are more likely to spend money on goods and services, boosting economic growth.
Investment: Businesses may invest more in new projects and expansions, as they anticipate increased consumer demand.
Job creation: Increased consumer spending can lead to job creation, particularly in sectors like retail and hospitality.
Conversely, when consumer confidence is low:
Decreased spending: Consumers may delay purchases, leading to a slowdown in economic activity.
Reduced investment: Businesses may become more cautious and reduce investment spending.
Potential job losses: Decreased consumer demand can lead to job cuts in various industries.
Therefore, monitoring consumer confidence is essential for economists, policy makers, and investors to gauge the overall health of the economy and make informed decisions.
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QUOTE OF THE MONTH
"Never underestimate your enemy.”
-Sun Tzu-???
Employment data for October was among the weakest of recent reports, with prior months revised lower and only 12,000 jobs added.
The numbers were likely distorted by strikes, bad weather, and a notably low response rate to Bureau of Labor Statistics surveys. But on its own the October report pulled the three-month average of job gains to a pandemic-era low that is near the pace Federal Reserve officials feel is needed to keep up with population growth.
Other details of the report seemed to confirm weaker hiring conditions, including a drop in the number of people finding a job who were either unemployed or not in the labor force in the prior month.
Still, the unemployment rate held steady at 4.1%, and average hourly earnings grew at a 4% annual rate, both signs of what Fed officials hope is a job market that has gotten back to a normal sort of equilibrium that can be sustained.
"In spite of the weak headline number, today's report shouldn't raise alarm bells for job seekers, workers, or policy makers yet...For now, a soft landing is still on the table," wrote Cory Stahle, an economist with the Indeed Hiring Lab, in an analysis of the October employment numbers.
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The Fed meets on Nov. 6-7, a session delayed a day for Tuesday's presidential election. U.S. central bankers are expected to reduce the benchmark policy rate by a quarter of a percentage point to a range of from 4.5% to 4.75%.
Other data since the Fed's September meeting has largely been in line with what policy makers said they were expecting.
Inflation data issued on Thursday showed the Personal Consumption Expenditures price index rose at a 2.1% annual rate in September, near the 2% target set by the Fed for that index.
A related measure excluding volatile food and energy prices and considered a better gauge of underlying inflation has been stuck for three months at a higher 2.7% level.
But even with quarter-point rate reductions expected in November and at the Fed's December meeting, monetary policy will still be considered tight at a time when many Fed officials feel their inflation battle is close to complete and economic risks shifting towards the job market.
Growth, meanwhile, remains strong and consumers continue to spend.
September retail sales were stronger than expected.
An initial report on third-quarter gross domestic product estimated the economy expanded at a 2.8% annualized rate, above the level Fed officials consider the long-term sustainable trend.3
The neutral rate of interest is an estimate of the real interest rate that would neither stimulate nor contract economic activity, keeping inflation stable. It's a theoretical concept, and its exact value is difficult to pinpoint. However, recent estimates by economists suggest that the neutral rate of interest in the US is around 0.5% to 1.0%. This means that a nominal federal funds rate of around 2.5% to 3.5%,assuming a 2% inflation target, would be considered neutral.
It's important to note that the neutral rate can fluctuate over time due to changes in economic conditions and policy decisions. Additionally, the Federal Reserve uses various tools and strategies to influence the federal funds rate and achieve its monetary policy objectives.
More specifically, with a current CPI rate of 2.4% and a PCE at 2.1%, the federal funds rate is currently too high. They need to drop rates by 1.25% to 1.5% to be at neutral. This will probably happen over the next year and a quarter to a year and a half. This reductions in rates, will help the interest sensitive sectors more. But no doubt, the entire market will benefit.?
Many of the views and opinions included herein may or may not be shared by Western International Securities and or its registered representative and should not be construed as investment advice.?
I'll bring you a recap of the November developments in the economy and markets at the top of December.
Between now and then, please feel free to call me or email me at the number or e-mail listed below.
You can also schedule appointments directly to my electronic calendar using the appointments hyperlink in my signature file below.?
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Sincerely,
Chris W. Polimeni, MBA
Financial Advisor
Branch Manager
Western International Securities
Member FINRA/SIPC
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19200 Von Karman Ave. Suite 600
Irvine, CA 92612
Phone: 800-874-0768
Fax: 949-222-5704
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Website: https://chrispolimeni.com ??
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International Securities, Inc., Member FINRA / SIPC.
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Securities, Inc. are separate and unaffiliated entities.
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