November Market Commentary
As the dust settles post-election, investors are keenly assessing what the next four years might bring. Despite the policy uncertainties that accompany a unified Republican government, the economic outlook remains largely stable. Additionally, market fundamentals look strong and matter more for returns, especially over the long term. The U.S. economy continues to be a straight A student, with GDP growth above trend (3Q24: 2.8% q/q saar), full employment (October unemployment rate: 4.1%), and low inflation (September CPI: 2.4% y/y), as shown in the chart below.
Consumers are maintaining their spending habits despite dissatisfaction with mortgage rates, which are higher than before the pandemic, and the price increases of the past few years. However, this confidence may be shifting, as evidenced by the Consumer Confidence Index's significant monthly increase—the largest since March 2021—rising to 108.7 in October from 99.2 in September. Notably, all five components of the index improved, indicating growing confidence in future job availability and stock market gains.
This economic environment is favorable for equity markets. Declining interest rates and real wage gains are positive for consumer spending, and S&P 500 operating margins are 8% above long-term averages, showcasing the dynamism of U.S. companies. Additionally, secular trends continue to encourage corporate investment. Besides high valuations, there are few reasons to anticipate a disruption in the upward trajectory of equities. The effects of the new administration's policies won’t be apparent for a while, so investors should refocus on the fundamentals, which are undeniably strong.
Source: JP Morgan Asset Management, which used sources BEA, BLS, J.P. Morgan Asset Management, Conference Board, S&P. All figures are y/y change, except for the unemployment rate (U.rate), which is a ratio. Nominal wages: Avg. hourly earnings of production and non-supervisory workers.
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