Welcome to our November 2024 Viewpoints, a monthly bulletin from PDS Planning to our valued clients and friends. Our goal with each issue of Viewpoints is to provide you with a wide variety of perspectives on life and wealth. Feel free to share with others.
Believe it or not, International Stocks are Keeping Up
For all we talk about the Magnificent 7 and US Large cap dominance with the S&P performance, some might assume international stocks are falling far behind. It can be easy to get caught up in US stocks because of where we live and how much easier it is to see US stock information specifically. Since this current bull market began in October 2022, international stocks – defined by the MSCI EAFE Index (developed markets) – have kept up with and remain neck and neck with the performance of the S&P 500.
Bond Prices Reacting to Updated Expectations
Markets are forward-looking. That’s stock and bond markets. They may react differently and in different proportions to the other, but both stocks and bonds are impacted by news and data. Economic data, particularly inflation and unemployment, have started to show strength in recent data prints. Paired with the uncertainty surrounding the potential impact tariffs will have on inflation (among other things) has resulted in the terminal rate for the Fed to increase. Rates have adjusted to the thinking rate cuts will be much slower than first anticipated and thus will remain higher for longer.
Bond prices had already been rising much of the year with anticipation of rate cuts, but now that expectations have changed those bond prices are getting realigned with the market and falling once again as yields rise.
Tariffs
There’s been a lot to unpack regarding what might happen in the next four years and beyond since election day. Economically speaking, tariffs have been one of the major talking points. If the proposed tariff threats are enacted, “the combination of the proposed 60% China tariff and 20% across-the-board tariff would lead to an overall U.S. weighted average tariff rate of nearly 26%”, says Charles Schwab’s Jeffrey Kleintop.
It’s generally agreed this is not the most likely scenario. There’s hope the threats will help negotiate new free trade deals with the different nations. In a full on trade war scenario the models show a minimal impact to global and US GDP. Perhaps not as bad as some thought. However, this does not take into consideration the potential impact tariffs may have on inflation (tariffs are historically inflationary) or the impact to the labor market as a result of the immigration policy. Jeffrey Kleintop then writes, “any future negative impacts could be amplified, given the proposal of much higher and broader tariffs and overall trade policy uncertainty impacting both domestic importers and multi-national businesses”.
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