KCG Investment Advisory Services

Kimberly Good

315 Commercial Drive, Suite C1

Savannah, GA 31416

912.224.3069

www.kcginvestmentadvisory.com

KCG Client Newsletter November 2024
Market Update
(all values as of 09.30.2025)

Stock Indices:

Dow Jones 46,397
S&P 500 6,688
Nasdaq 22,660

Bond Sector Yields:

2 Yr Treasury 3.60%
10 Yr Treasury 4.16%
10 Yr Municipal 2.92%
High Yield 6.56%

YTD Market Returns:

Dow Jones 9.06%
S&P 500 13.72%
Nasdaq 17.34%
MSCI-EAFE 22.34%
MSCI-Europe 24.64%
MSCI-Pacific 17.97%
MSCI-Emg Mkt 25.16%
 
US Agg Bond 6.13%
US Corp Bond 6.88%
US Gov’t Bond 5.93%

Commodity Prices:

Gold 3,882
Silver 46.77
Oil (WTI) 62.52

Currencies:

Dollar / Euro 1.17
Dollar / Pound 1.34
Yen / Dollar 148.71
Canadian /Dollar 0.71
 

Markets React To Post Election Results – Domestic Equity Overview

The S&P 500 Index had its best post-election day in history, rising 2.5% on November 6th. Perhaps the expectation of deregulation and low corporate taxes drove stocks higher but domestic markets trended higher after each of the elections in 2016 as well as 2020.

Equity indices struggled in October as uncertainty surrounding the outcome of the election. Only three of the eleven sectors of the S&P 500 Index were positive for the month. Much of that uncertainty has been resolved now, with a decisive outcome for President Trump and the Senate and House majorities following party.

U.S. equities remain supported with tepid economic expansion and broadening earnings across all sectors, yet uncertainties surrounding the current budget deficit, trade, and the dollar continue.  That uncertainty may be reduced with policy decisions after the elected administration takes office, but it’s more than two months until inauguration, market volatility moves in both directions, and political divisions are stubborn. (Sources: S&P, Dow Jones, Reuters, Bloomberg)

Long Term Yields Rose Leading Up To Election – Fixed Income Update

Anticipation of economic growth policies proposed during the campaign prompted the possibility of elevated inflationary pressures, driving bond yields higher. Many of the proposed policies will require Congressional approval before being enacted.

The Treasury market reacted to the growing concern surrounding an expanding government deficit and the massive issuance of federal debt to fund current and future deficits. As a result, longer term Treasury bond yields rose implying that stubborn federal deficits may continue for years.

The yield on the benchmark 10 year Treasury bond rose to 4.28% at the end of October, up from 3.81% at the previous month end. Short term bond yields rose less as the Fed prepares to continue cutting the Fed Funds rate as projected. (Sources: U.S. Treasury)

Corporate Profits

Profit cycles vary across economic sectors.  Mckinsey.com lists Health Care, Consumer Staples, Tech, Financials, and Real Estate as showing some resilience in the face of current economic conditions.  However, I think Consumer Staples (a defensive sector) is the only one we see “recovering” specifically because of the current economic realities.  Let’s take these one at a time.  Health Care since ACA is a public-private partnership and no longer moves naturally with market conditions.  Government influence must be considered in valuation of these stocks.  The Magnificent Seven (Tech) continues to be supported by investors holding onto the depression-style leadership of so few.  Brokers continue to participate in the harvesting of low hanging fruit; But year-to-date, as many as 70 S&P 500 companies have returns of more than 25%, and only 1 of those is a Mag 7 stock (Nvidia). Financials actually have not seen big changes due to the lowering Fed Funds rate, as can be seen in sticky borrowing rates and bond yields.  Yes, 30-year mortgage rates have dropped from 8.01% to 6.44%, but rates were as low as 3.22% at the beginning of 2022.  Real Estate: according to yesterday’s Wall Street Journal, “Sales of existing homes in the U.S. are on track for the worst years since 1995 – for the second year in a row.”
What I do see is that stock leadership is broadening from just seven companies and that indicates that we need to be diversified.  Not only across companies, but asset classes, sectors, styles, and currencies.

 
THE BIG THREE: Corporate Profits, Liquidity & Consumer Sentiment

Liquidity

Fed Policy is just one influence on liquidity in the economy. You are currently seeing the Fed lower rates, but inflation continues to rise, incrementally at the moment.  Economists and investors also closely watch bond rates and the yield curve as leading indicators.  Bond rates are influenced by capital markets, fiscal policy, banks and foreign capital.
The Fed lowers rates to make credit (capital markets) more accessible to everyone, but if the government makes decisions about spending and taxation that cause inflation, they are working counter to each other.  Today, we have rising rates in spite of the Fed cutting 50 basis points.  One reason for that is the amount of cash (read “liquidity”) that has been distributed by the government in the name of stimulus.  Far more than some might argue was necessary to come out of the Pandemic.  If there are more dollars available to buy goods, that is inflationary.  But Americans saved many of those freshly-printed dollars rather than spending them, which muted the impact for now.  Goods continue to become more and more expensive. Rather than spend money they don’t have, many Americans are choosing to forego discretionary items like dining out or beauty products.  That’s fiscally responsible but if we are not consuming goods, businesses may fail and jobs could be lost, requiring government assistance… requiring the printing of new money… requiring more paper dollars to be printed to buy goods that are becoming more expensive. Is the dollar stable? Why are Japan and China selling off treasuries?
Foreign Capital
Globalization means goods are produced where it is most efficient and least expensive.  We have come to understand, however, the risk of relying on other counties (often not our allies), for producing computer chips.  When will we understand the risk of reliance upon others for pretty much everything? We have more goods going out than coming in. As long as that is the case, inflation rates will remain higher than target.

While on a relative basis, the US dollar is still perceived as the most powerful currency, BRICS (Brazil, Russia, India, China, South Africa) met in Russia last week. Control over natural resources and acceptance of a currency to outperform the US were top on the agenda.  Attendees included Turkey, Iran and the UN Secretary-General. They discussed deepening financial cooperation to counterbalance Western-dominated payment systems including SWIFT.  (Transactions facilitated by SWIFT are denominated in dollars, further solidifying the US’s economic influence. (source: richmondfed.org))  De-dollarization efforts continue globally. Are we energy independent? How is Russia funding the war on Ukraine?

Consumer Sentiment

I like to follow Richard Bernstein’s macro analysis of the markets.  Most recently, he commented in his quarterly review, that politics don’t matter to the market.  He pointed out that market return was exactly the same between the Obama and Trump presidencies.  Well, there is no arguing those numbers, but without taking a side, I strongly disagree with his conclusion.  The Economy is not the Market.  The Obama and Trump economies were vastly different.  Were the same people earning those returns in both presidencies? Why?

Equity Outlook

Uncertainty among global markets rose as conflict in the Middle East elevated tensions and roiled energy markets. Oil and fuel prices spiked as the threat of supply constraints and the disruption of shipping routes imposed duress on an already fragile environment.

 

 

 
Equity Outlook

The aftermath of Hurricane Helene is estimated to result in roughly $34 billion in losses, after dumping a staggering 42 trillion gallons of rainfall and becoming one of the most destructive hurricanes on record. The massive destruction of homes, businesses and coastal areas is expected to possibly take years to repair and revitalize. The Federal Emergency Management Agency (FEMA) which has already been stretched thin by record-setting wildfires, weather events, and migration, has warned that the agency doesn’t have enough funding to make it through the 2024 hurricane season.

The port workers strike affected every port and major maritime trade gateway from Boston to Houston, where billions of dollars of imported and exported products flow. Union workers voted on postponing the strike and resuming work until January 15th, in order to allow for negotiations between employers and the International Longshoremen’s Association union.

Consumers have been cutting back and have been evading discretionary purchases budgets tighten. For example, KCG’s stock composite holds Coty, which is one of the largest beauty companies globally but has been under significant price pressure.  It is a U.S.- domiciled, multinational company that meets KCG’s robust criteria and carries a CFRA recommendation of BUY.  Such cost-conscious consumer pull-backs are considered to be deflationary.

The initial 0.50% rate cut by the Fed received a lukewarm response by domestic and international equity markets, as the Fed announced that rate cuts such as the initial reduction should not be expected to continue at generous as it was. The Fed’s reduction immediately affected consumer interest rates from mortgages to auto loans.  People with locked-in low, low rates are not expected to make a change any time soon, however, putting upward pressure on home and auto prices.

The Fed can only control short term rates, while the fixed income market dictates intermediate, and long term maturities. Mortgage rates fell to their lowest levels in over a year in September, but bond yields continue to creep back over 4%.  While this does not bode well for inflation, it makes it more likely that KCG will find bond issues that meet our 4% target to fill gaps in Clients’ bond ladders.

Insurance premiums are expected to rise even further in the wake of the damage caused by Hurricanes Helene and Milton, prompting some homeowners to sell or relocate because of unaffordable insurance. The insurance industry is on edge as rising claims progress as a result of the unpredictable hurricane season.

The tremendous demand for energy driven by Artificial Intelligence (A.I.) has for the first time in decades, garnered support to reopen and expand existing nuclear facilities, including the infamous Three Mile Island nuclear plant in Pennsylvania. (Sources: Federal Reserve, Treasury Dept., FEMA, Bloomberg, Dept. of Energy)

Domestic equity indices bounced upward in September, defying notions that the month has been a historically dire month for stocks. The Fed’s greater than expected rate cut prompted a rise in equities for small, mid and large capitalized companies, which saw their borrowing costs decline. The Dow Jones Industrial Index, the S&P 500 Index, and the Nasdaq Index all posted advances for the month of September.

The Securities & Exchange Commission (SEC) approved the pricing of stocks and ETFs traded on exchanges to be quoted in half-penny increments. The change allows for enhanced efficiency of pricing actively traded stocks and ETFs, which currently trade an average of 5 to 6 billion shares per day. (Sources: Securities & Exchange Commission, Dow Jones, S&P, Nasdaq)

 

 
Fixed Income

Rates Hesitate To Fall Further – Fixed Income Overview

Bonds reacted cautiously to the Fed’s initial rate reduction, anticipating that the Fed may not reduce rates as quickly as hoped. The yield on the 10-year Treasury ended September at 3.81%; not much lower than where it ended the previous month at 3.91%. Today, as I write this, the 10 year has reached 4.47% while the 2 year is at 4.05%.  Yet numerous analysts and economists believe that growing uncertainty surrounding the economy, hurricane losses, the Ukraine and Middle East conflicts, and the election may lead to a gradually evolving lower rate environment.

The Fed signaled that it may move slower with future rate reductions should the employment market and inflation continue to expand. Recent developments such as the effects of the port strike and aftermath of Hurricanes Helene and Milton, have imposed new challenges and duress for hundreds of thousands of individuals and businesses directly affected by the storms, as well as indirectly affecting millions across the country, as disrupted supply chains cause price changes. (Sources: Treasury Dept., Federal Reserve)

The Federal Reserve attempts to address inflation and the employment market via increasing and decreasing short term rates via the Fed Funds, yet long term rates are established and set by the enormous fixed income market, which essentially determines nearly all other bond maturity prices and yields. Some analysts and economists believe that the Fed may just be transitioning back to historical Fed Fund rates in the range of 2.00% – 3.00%, which is where rates hovered before the Covid-19 outbreak.

 

During the pandemic, the Federal Reserve shifted into crisis mode as millions of Americans weren’t working, businesses shuttered, and economic growth reversed into economic contraction. The Fed Funds Rate fell from 2.00% in 2019 to 0.0% in March 2020 in order to provide critical liquidity and attainable consumer loan rates to fortify the financial system.

The rapid increase in the Fed Funds Rate during the post pandemic environment was meant to alleviate inflationary pressures and to protect the U.S. dollar from an earlier drop. The question many analysts and economists have now is, how low will the Fed take the Fed Funds Rate, and how long will it take until it finds the optimal rate range.

Source: Federal Reserve Bank of New York

 

 

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period as of the date published.  All third party cate correlates with that published date.  Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.