Wentz Weekly: Post Election Winners

Wentz Weekly Insights
Election Uncertainty in the Rearview, Stocks Surge, Here Were the Winners

We would like to open this week’s newsletter with a big Thank You to all our Veterans who have served our country, we appreciate your dedication and what you have sacrificed to protect the freedom of Americans. Happy Veteran’s Day.

A very strong post-election rally for stocks on Wednesday then another strong session to end the week on Friday sent stocks to new record highs. In fact, Wednesday turned out to be the best post-election day for stocks ever – the S&P 500 gained 2.53% while small caps, measured by the Russell 2000 index, rose 5.84%. Several milestones were set as well – the S&P 500 surpassed 6,000 and the Dow passed 44,000 for the first time ever.

Leading up to the election, uncertainty was climbing – It was an election that most thought to be highly uncertain, apparent by the volatility index (VIX) rising to its highest level since the market pullback in August. However, a red wave and surprising performance by the Republicans sent optimism into the markets and resulted in the VIX falling over 30% by the end of the week. It was not just the fact a certain party had won, it was that markets enjoyed having the certainty of election results early, as well as a margin of victory that was wider than 2020, removing an claims of fraud.

Not only did Trump take the presidential race, but the party took back control of the Senate, flipping at least 3 seats and now holding a 52 majority, with Pennsylvania and Arizona races still too early to call (its looking like the Republican McCormick may win PA and Democratic Gallego may win AZ, which would give the Republicans a 53-47 majority).

As of our latest edits Monday morning, the House is still undecided but very likely to see Republicans maintain their majority, although by a slim margin. As of this writing, Republicans control 214 of the 435 seats, just four shy of maintaining its majority. This would give Republicans control of the White House and both chambers of congress, making it less difficult (but still not easy) to pass many of Trump’s policies. But recall, the GOP party in the House has been somewhat divided during the 118th Congress (2023-2024) that has led to little legislative challenges.

For a review of what is believed to be priorities for the Trump Administration, see this post-election piece from Raymond James here.

This election was different in many ways. For example, as Raymond James CIO Larry Adams notes in his article above, here are a number of reasons it made this election unprecedented:

• The first sitting President to drop out since 1969
• The first time control of the White House switched three consecutive elections since 1896
• Largest amount of money spent on an election ($16 billion) in history
• The smallest swing in polling in the final two months in at least 20 years
• The best three-month equity performance leading into the election since 1928
• First president to win a non-consecutive term since 1892 (Grover Cleveland)
• First Republican to win the popular vote in 20 years

The market reacted positively on Wednesday after getting the confirmation Trump would be the 47th President, and several sectors performed much better than others. The so called “Trump trade” benefited the financial sector, particularly banks due to deregulation hopes as investors believe his deregulation push will bring less stringent capital requirements as well as his free market policy benefiting financials, energy stocks, prison stocks, cryptocurrencies, while clean energy stocks were lower.

The Russell 2000, the small cap index, was up 8.6% on the week for the best week since March 2020, mainly due to its exposure to regional banks, but also for hopes of less regulation which helps smaller businesses.

In the fixed income markets, bonds were down for the week. Treasury yields spiked on Wednesday after the election over continued government deficit and debt concerns. Then, Thursday saw the Fed meeting where yields gave up much of the gain from Wednesday and finished the week mixed, with shorter term maturities seeing slightly higher yields and longer term maturities seeing lower yields.

The Fed’s FOMC meeting felt like more of a non-event, with little reaction from markets. The Federal Reserve policy committee voted to reduce interest rates 25 basis points after a 50 basis point cut in September.

The policy statement saw little changes – on the labor market it said since earlier this year labor market conditions have generally eased, instead of saying “job gains have slowed.” It took out the sentence that the Committee gained greater confidence that inflation is moving sustainably toward 2%, and reworded its decision to cut rates, saying it did so “in support of its goals,” instead of due to the progress on inflation, making it apparent it is now focused on the labor market deteriorating rather than just inflation.

Powell was asked about this change in which he noted it was not to reflect anything but a shift away from its forward guidance language that it was using to indicate the start to rate cuts. Now that the Fed has started the rate cut cycle, he said the Fed does not need further confidence that inflation is moving lower, rather is instead focused on the incoming data and the impact of lowering rates.

Of course, there was a big focus on the election and impacts on monetary policy from potential Trump administration policies. Powell indicated the election will not have an impact on the Fed’s views but when new policies are implemented, they will assess and not respond until it has enough clarity on the impact to the economy, adding they will not guess or speculate or assume, but will rely on the data.

The rally in stocks last week left US stocks even more expensive with the S&P 500 trading at 22.3 times its forward earnings estimates, around 30% more than its historical average. Now this week turns to the latest round of inflation data on Wednesday followed by a Powell speech on Thursday, both of which could be market moving.

Week in Review:

It was a very strong week for stocks, in fact the best in two years, and a mixed week for bonds. All US stock indices hit new record highs, with the Russell 2000 having the best week since March 2020 and the other three the best in two years. The four indices finished as follows: Russell 2000 +8.57%, Nasdaq +5.74%, S&P 500 +4.66%, and Dow +4.61%. The fixed income market was mixed with longer term bond higher but shorter term lower – the 2-year Treasury yield rose 4 basis points to 4.26% while the 10-year yield fell 9 bps to 4.31%. Crude oil finished the week up 1.3% as OPEC extended its production cuts again. The dollar index rose 0.7% while gold fell 2% from record highs. Bitcoin rallied after the election with a 10.2% weekly gain.

Recent Economic Data

• ISM Services Index: The ISM non manufacturing (services) index jumped in October to 56.0, up from 54.9 in September, suggesting the services sector saw more growth in the month. In fact, this is the highest index reading since July 2022. Of the 18 major industries reporting, 14 of them saw growth in the month while only two saw a contraction. Respondents noted longer delivery times due to the hurricanes while employment rose but the prices continue to rise and at a faster pace than prior months.
• Worker Productivity & Costs: US worker productivity increased at a 2.2% annualized pace in the third quarter of this year, a slowdown from recent quarters and from the second quarter’s 2.5% increase. The quarterly increase was mostly due to a 3.5% increase in output, while a 1.2% increase in the number of hours worked offset some of the output gains. On the other hand, unit labor costs (which is the cost to produce each unit of goods/services) increased at a 1.9% annualized rate in the quarter due to a 4.2% increase in worker compensation and offset by the 2.2% increase in productivity. Compared to a year ago the unit labor costs are up 3.4%. Worker productivity is such an important data point because it is the main factor that drives longer-term economic growth.
• Jobless Claims: The number of jobless claims the week ended November 2 was 221,000, up just slightly from the week prior, while the four-week average declined 10k to 227,250. The number of continuing claims was 1.892 million, an increase of 39k and moving to the highest since November 2021. The four-week average increased 8k to 1.875 million.
• US Trade Deficit: The trade deficit was $84.4 billion, expanding by about $14 billion in September, more than expected. That means the US imported $84.4 billion more in goods and services than it exported. The wider deficit was due to a $10.3 billion, or 3.0%, increase in imports, while exports fell $3.2 billion, or 1.2%. Year-to-date the deficit has increased $49.6 billion, or 11.8%, from the same period last year, with imports up 5.3% and exports up 3.7%. An indicator of global demand and overall trade activity is looking at the total amount of trade activity, which increased 1.2% in the month and 5.9% from a year ago.
• Consumer Credit: Growth in consumer credit slowed in September, according to the latest monthly data by the Fed. Total consumer credit was $5.103 trillion, an increase of $6.0 billion, or up at a 1.4% annualized rate. Revolving credit, like credit cards, saw a much slower growth in the month, rising just $1.05 billion, or 0.1%, which is slower than the average monthly increase of 0.5% over the past 12 months. Compared to a year ago, revolving credit is up $63 billion, or 4.9%, slowing from the high single digit pace from the past year and the lowest annual increase since late 2021. Nonrevolving credit, like mortgages/auto loans, rose $5 billion, or 0.1%, and is up 1.3% from a year ago, consistent with the recent average.
• Mortgage Rates: The average prime credit 30-year mortgage rate increased 7 basis points over the past week and now stands at 6.79%, up from a recent low of 6.08% from just 6 weeks ago. However, mortgage rates are still a full percent below the recent high this time last year.

Company News

• Apple’s New Product Study: After failing to garner attention and sales from its costly Vision Pro headset, Apple is beginning an internal study of smart glasses currently on the market, indicating the company may be making plans to enter into that market, according to a Bloomberg report that cites people with knowledge to the matter. Its study is codenamed Atlas where it is asking its employees for feedback on smart glasses.
• TGI Friday’s Bankruptcy: The Texas based restaurant chain TGI Fridays has filed for Chapter 11 bankruptcy protection last weekend. The company has been dealing with declining sales and cited in the filing a problematic capital structure and ongoing damages from the Covid pandemic.
• Taiwan Semi Chip Restrictions: Reuters reported that the US Commerce department sent a letter to Taiwan Semiconductor Manufacturing that it must halt shipments of its advanced chips that are used to create artificial intelligence applications to Chinese customers starting Monday. The order comes several days after Taiwan Semi notified the Commerce Department that one of its advanced chips was found in an AI processor from Huawei, a major Chinese technology company known for its large market share in the smartphone market. Huawei is on the US restricted trade list meaning its suppliers are required to obtain a license before shipping goods to the company.

Other News:

• OPEC Oil Supply Cuts Extended: The oil producing group OPEC+ said on Sunday it would postpone its plan to gradually increase oil production until the end of the year. The prior plan was to begin increasing oil production by about 180,000 barrels/day beginning in December. The group cited weak demand, particularly from China, as well as rising supply from non-OPEC nations. The planned increase in production is to unwind its 2.2 million bbl/day production cuts it put into place a couple years ago.
• More Rate Cuts: The Bank of England cut interest rates by 25 basis points, as expected. It was the second rate cut of the cycle, after one rate cut in August but holding rates unchanged in September. The committee said due to the evolving evidence, a gradual pace of rate cuts remains the most appropriate course.
• China’s New $1.4 Trillion Package: China Parliament ended its five day meeting with an announcement that it will launch a $1.4 trillion package aimed at easing the massive debt held by local governments, basically refinancing local debt onto public balance sheets, but fell short of unveiling a new stimulus package for the economy. Chinese stocks and its currency, the yuan, both declined, indicating investors were still underwhelmed by the announcement.

Did You Know…?

IRS Tax Updates for 2025:

The IRS announced updates on contribution limits for 2025 which makes it a good time to review your contribution limits as we near the end of 2024 and head into the new year:

• 401k/403b/457/ Thrift Savings Plans – Annual contribution limits increased $500 to $23,500 for 2025.
  • Catch-up contributions, additional contribution limits for those over the age of 50, remain unchanged at an additional $7,500 (for a total of $31,000).
  • Under a change made in SECURE 2.0 Act, a higher catch-up contribution limit applies for employees aged 60 to 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500 (for a total of $34,750).
• IRAs – Annual contribution limit to remain $7,000.
  • The catch‑up contribution remains $1,000 for 2025 (for a total of $8,000 for those over the age of 50).
• Phase-out limits were increased. If you plan to contribute to a Roth IRA, you may be phased out if your income is over a certain level. Please reach out to us and we can discuss limits and possible alternatives.
• HSA – annual limit increased $100 to $3,300.

Several other tax updates were made, key changes below:

• Marginal Rates (tax brackets) – these were increased across the board.
• Standard deduction – increased $400 for single tax filers to $15,000, increased $800 for married filers to $30,000, and increased $600 to $22,500 for head of household.
• Increase in earned income tax credits.
• Annual exclusion for gifts – increased $1,000 to $19,000.

WFG News

Veteran’s Day – Banks Closed
Please note that today is a bank holiday in observance of Veteran’s Day, and as such all bank transactions are delayed one day.

WFG Closed November 29
Please note that Wentz Financial Group will be closed Friday November 29th (Black Friday). We will be back open Monday morning.