Key Observations
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.
After increased market volatility in October, U.S. equity markets led the charge higher during November, 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. Additionally, as we have been reiterating, U.S. Small Cap equities remain attractive due to valuations while in a monetary easing cycle. This sentiment proved correct throughout the month as Small Caps were a standout returning 11.0% amid investor risk-on sentiment. However, weighed down by a strong U.S. dollar, international developed markets continued its underperformance to U.S. equity markets, but we will continue to maintain an allocation in the space due to valuations and diversification benefits. Emerging markets also underperformed during the month, and while we maintain our indirect exposure to the asset class, we will not directly allocate to the space at this time due to concerns about global economic stability, particularly in areas of real estate and trade policy in China.
Looking across the globe at a macro level, 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 as we discussed in our May content offering.
We illustrate this concept in the below chart using cumulative monthly returns of the Ibbotson U.S. 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. 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
2024 saw no shortage of market volatility with markets reaching new highs, geopolitical tensions, evolving technology trends and central bank policies. As we look to close out the year and transition to a new administration, uncertainty around tariffs, taxes, and regulation will dominate headlines into 2025. However, elections often generate more noise than signal for long-term investors. We remain focused on key economic data including the recently released non-farm payroll number which rose 227,000, the unemployment rate which ticked up from 4.1% to 4.2% and the upcoming Consumer Price Index (CPI) data which will be released on December 11th. These inputs will help inform the Federal Open Market Committee’s decision on December 18th on whether to pause or enact another rate cut of 25 basis points.
Entering 2025, we expect more of the same, so at Clarendon Private we continue to focus on constructing durable portfolios that can withstand the volatility that comes with various economic and market conditions. Our job is to build portfolios that help you achieve your goals over the long-term. As we close out the year, we would like to say thank you for the trust you have placed in us. We are honored to have the opportunity to serve you.
We wish you all the very best for a healthy and happy holiday season.
Sources
U.S. Bureaus of Labor Statistics & Economic Analysis, November 30, 2024
The Federal Reserve, FOMC Statement released on November 7, 2024
Fiducient Advisors, LLC
Disclosures
The information provided is illustrative and for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. This document may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Certain targets within the presentation are estimates based on certain assumptions and analysis made by the advisor. There is no guarantee that the estimates will be achieved.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Clarendon Private’s strategies are disclosed in the publicly available Form ADV Part 2A.
Diversification does not ensure a profit or guarantee against loss. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. You cannot invest directly in an Index.
Clarendon Private, LLC (“Clarendon Private”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Clarendon Private and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://www.clarendonprivate.com/ or the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Clarendon’s CRD # 316616