Highlights
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Payroll growth was muted in October.
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Stocks were down in October, but 2024 is on pace to be the best year so far this century.
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Despite Fed rate cuts, longer-term interest rates have been on the rise.
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The 2024 election is finally over.
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Economic Update
Employment
The job market exhibited signs of significant weakening, although recent hurricanes and the dockworkers strike could be partially to blame. The unemployment rate held steady at 4.1% from September to October, but the labor force participation rate dipped slightly by 0.1 percentage points to 62.6%. Nonfarm payrolls grew by a meager 12,000 jobs, which was far weaker than the consensus of 100,000. Excluding 2020, which was significantly influenced by COVID shutdowns, it was the smallest gain in payrolls for any month since early 2019.
Consumers & Inflation
In September, the U.S. inflation rate declined for the sixth consecutive month, reaching 2.44%. However, core inflation moved in the opposite direction for the second straight month, rising to 3.31%.
Stocks and Bonds
While markets were broadly lower in October, returns were not as “scary” as the historical precedent might indicate. (According to Howard Silverblatt from Standard and Poor’s, 32% of the 25 worst trading days in the S&P 500 index history occurred in the month of October.) With the 2024 presidential election looming large, the S&P 500 dropped 0.9%, the Nasdaq Composite fell 0.5%, and the Dow Jones Industrial Average shed 1.3% for the month. Prior to month end, the Dow set another seven new closing highs, bringing the total for 2024 to 40, and closed above 43,000 for the first time.
Mid- and small-cap stocks were also down during the month, with mid-caps performing better than the S&P 500 while smaller stocks were off by -1.4%. Foreign stocks fared the worst with Emerging Markets and the EAFE indices losing -4.3% and -5.4%, respectively.
Despite a month characterized by broad declines, investors should still be pleased with how stocks have performed over the past 12 months. With October marking the one-year anniversary of the near-term low all of the major indices have returned between 23.6% and 41.9%. If the current trend in the markets continues through November and December, 2024 will be the best year for the market so far this century (see second chart below.)
The sector landscape shifted sharply from September; while eight of eleven sectors posted gains last month, October saw only three sectors—Financials, Communication Services, and Energy—finish positive. Health Care was the hardest-hit sector, falling 4.6%, followed closely by Consumer Staples (-3.5%) and Real Estate (-3.3%), with the latter impacted by slower home sales, declining prices, and rising mortgage rates.
In October, Treasury yields surged in the intermediate and long ends of the curve, even with the Fed anticipated to rate cuts in early-November. The 3-year and 5-year Treasury Note yields saw the steepest rises, increasing by 54 and 57 basis points, respectively. Meanwhile, yields on the 1-month and 3-month Treasury Bills declined during the month.
The increase in yields pressured fixed income returns. Longer-duration bonds (those with maturities further out into the future) saw more significant declines. Bonds with shorter maturity dates were not as significantly impacted, but still saw declines for October. However, trailing one-year returns remain well into positive territory.
That’s Finally Over
November 5th (thankfully) concluded the 2024 election cycle. (Well, technically it was not until 2:24 a.m. Eastern Time on November 6th when the Associated Press called the state of Pennsylvania for Donald Trump, securing him the 270 Electoral College votes needed for victory.)
Heading into election night, polls suggested a tight race. Betting markets showed Trump gaining ground in the final weeks, but uncertainty about the outcome remained high.
The day after the election the S&P 500 surged by 2.5%, marking its best single-day performance in nearly two years. The response was interpreted as a positive outlook on potential economic growth and relief that the outcome of the election was clear.
While some were surprised by the outcome, what was not unexpected was that roughly half the country would be disappointed, regardless of the winner.
As the vote count stands one-week post-election, Trump won approximately 51.1% of the popular vote compared to Harris’s 48.9%. We remain a 50/50 nation when it comes to the political landscape.
How should the election outcome influence the way clients approach their investment strategy? Our advice: it shouldn’t.
An election result is only one factor among many impacting the markets. History shows that the stock market has generally performed well under presidents of both parties, though each administration experiences inevitable periods of volatility and declines.
The table below compares the performance of the S&P 500 under the last five presidential administrations, along with some other key variables.
Since Bill Clinton’s inauguration on January 20th, 1993, through election day 2024 the price of the S&P 500 has increased over 13-fold. Across all but one administration, stocks averaged mid-teens annual returns. However, thesreturns weren’t in a straight line that went up and to the right. Each president saw the market stumble during their term with peak-to-trough drawdowns that averaged 30%.
While it is interesting to look at returns in this way, it’s unlikely that any single president can take full credit or all the blame for how markets performed.
Bill Clinton had the good fortune of presiding during a period of unprecedented economic growth with no recessions. When he came into office the market was trading at reasonable valuations and earnings grew steadily. When he left office the Tech Bubble of the late-1990’s was just beginning to deflate. The result was a 17.52% compounded annual return for stocks during his eight-year term.
In contrast, George W. Bush entered office with historically high market valuations and historically low dividend yields. The bursting of the tech bubble was gaining steam and the S&P lost nearly 15% during his first two months in office. The economy entered a recession in March 2001, followed by the September 11 terrorist attacks that shocked the nation later that year.
The market bottomed in October 2002 and recovered impressively over the next five years, doubling in price and returning an annualized 17.2% to the peak in October of 2007. Unfortunately, the Global Financial Crisis plunged the economy into a second recession and another bear market at the end of Bush’s presidency.
When Barack Obama took office, the economy was in a recession and earnings were at very depressed levels. As both recovered, the market rallied, returning over 16% annually during his eight years in office, second only to the returns during Clinton’s presidency.
Both Trump and Biden enjoyed similarly strong market returns. Despite a sharp market drop at the start of the 2020 pandemic, the S&P 500 returned nearly 16% annually during Trump’s first term in office. Under Biden, the market saw turbulence in 2022 culminating in a 25% drawdown from the peak, but stocks have performed well on the whole during his presidency.
The takeaway: Market performance depends on far more than who wins the White House or controls Congress. Factors like stock valuations, economic cycles, and unexpected global events will create short-term volatility.
In the long term, as shareholders, we are investing in companies – not in elected officials. Whether you are disappointed or encouraged by the outcome of this election, ultimately things are neither likely to be as bad as some might fear, nor as good as some might hope. Try to look beyond the outcome of the election and maintain an approach that reflects your specific financial goals and objectives.
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Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security. To learn more about our firm and investment approach, check out our Form ADV.
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