Market Review: Riding the Wave
Post-election optimism fuels U.S. markets while global uncertainty lingers
By Crescent Team
KEY OBSERVATIONS
• A republican victory fueled a rally in the U.S. equity markets in anticipation of pro-business policies such as potential deregulation and tax cuts.
• The U.S. dollar appreciated, reflecting expectations of inflationary fiscal policies and potential shifts in Federal Reserve actions.
• The Federal Reserve and Bank of England cut rates by 25 basis points, citing a need to support economic growth amid moderating inflation.
MARKET RECAP
November was a dynamic month across financial markets, shaped by the interplay of easing inflation, political shifts, and evolving investor sentiment. As economic indicators pointed to moderating growth and a cooling labor market, consumer spending remained robust, even as rising household debt hinted at potential cracks in the foundation. Investors are bracing for a gradual economic slowdown into 2025, with the Federal Reserve signaling a cautious, data-driven approach to monetary policy.
U.S. equity markets led the charge higher during the month, with large cap rising 6% on expectations of deregulation and tax reforms following the recent election. Positive earnings reports and robust consumer spending further bolstered confidence. Small-caps were a standout during the month on lower valuations making them more attractive to investors amid risk-on sentiment. However, international developed and emerging markets underperformed, weighed down by a stronger U.S. dollar and concerns about economic stability in China, particularly in real estate and trade policy.
Central banks continued their easing stance, with the Federal Reserve and the Bank of England cutting rates by 25 basis points each. U.S. bond markets saw modest returns as inflation concerns and fiscal policy uncertainties limited gains. In Europe, political instability and rising inflation created mixed results, while Japan's bonds declined due to anticipated monetary tightening. Credit spreads tightened further during the month on low supply and resilient corporate fundamentals supported gains in high yield.
The U.S. dollar rose sharply during the month, influencing global trade and asset performance. Commodity markets were mixed as natural gas prices surged due to supply disruptions while precious metals saw profit-taking amid rising geopolitical tensions. Real estate rose during the month as elevated rates continued to dampen home sales and the presidential election introduced hesitation in the market, with both buyers and sellers adopting a "wait-and-see" approach regarding potential policy changes. Other notable real estate sectors were resorts and data centers which benefitted from increased consumer traveling and continuing demand for cloud computing and artificial intelligence.
THE POWER OF COMPOUNDING
With the U.S. presidential election behind us and U.S. equity markets surging, questions around portfolio strategy often arise. History suggests market timing around elections can erode value.
We illustrate this concept in the below chart using cumulative monthly returns of the Ibbotson US Large Stock Index dating back to 1961. The cumulative returns across Democrat and Republican administrations reveal a stark truth: maintaining a long-term, unbiased investment approach yields the most significant growth.
While we would avoid drawing any definitive conclusion from this chart on partisan cycles, the data clearly underscores the importance of staying invested through political cycles. In fact, staying invested through political regimes yielded nearly 10-times higher return than only investing when either democrats or republicans are in office(1). We believe portfolio success often depends on resilience and discipline rather than reacting to short-term events. As such, we recommend that investors keep investment decisions independent of political outcomes when building long-term portfolios.
OUTLOOK
As the U.S. transitions power, uncertainty around tariffs, taxes, and regulation will dominate headlines. However, elections often generate more noise than signal for long-term investors. Our focus remains on constructing durable portfolios and partnering with skilled managers to generate alpha in challenging conditions.
1) Schwab Center for Financial Research, Morningstar. Data from January 1, 1961 to December 31, 2023. See disclosures for additional information and definitions.
For more information and assistance, please contact any of the professionals at Crescent Wealth Advisory.
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Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Indices cannot be invested in directly. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect our fees or expenses.
• The S&P 500 is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
• Russell 2000 consists of the 2,000 smallest U.S. companies in the Russell 3000 index.
• MSCI EAFE is an equity index which captures large and mid-cap representation across Developed Markets countries around the world, excluding the U.S. and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
• MSCI Emerging Markets captures large and mid-cap representation across Emerging Markets countries. The index covers approximately 85% of the free-float adjusted market capitalization in each country.
• Bloomberg U.S. Aggregate Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
• Bloomberg U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.
• FTSE NAREIT Equity REITs Index contains all Equity REITs not designed as Timber REITs or Infrastructure REITs.
• Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification.