Stocks pushed higher in November, bringing an appreciated relief to the weakness we have seen since August. The rally was fueled in part by hopes that the Federal Reserve would continue to not raise interest rates from the July hike. Stock market gains were reinforced by a lower-than-expected inflation report delivered on November 10th. While the inflation rate remained unchanged from the prior month, consumers continue to face a nearly 20% increase in prices from pre-COVID levels. Deflation has been a recent news topic, yet its occurrence is rare (the last event was in 2009). Oil prices also declined in November, an ironic twist as a major war continues to develop in the Middle East.
Time Between Rate Hikes and Rate Cuts
One interesting data point gathered from the last 40 years is the amount of time it takes the Federal Reserve to cut interest rates after they have been consistently raising rates. Generally, the Fed will cut rates due to fears of an economic slowdown, or in response to a negative market event. Lower interest rates are a stimulant for the economy; they lower the cost of borrowing and drive money into the stock market. The three most recent and significant cuts were in response to the pandemic, the Great Recession, and the Tech Bust. Since 1981, there have been seven rate-cutting cycles (source). Of the seven cycles, four contained recessions (five if you count the Pandemic). The average time between the last rate raise and the first cut is 6.3 months, with the longest span being between 2006 and 2007, lasting 12 months. Four months have passed since the last rate hike (July 27th). This suggests we are historically approaching a rate cut, either in response to fears of a slowdown or an actual slowdown or market event.
Housing Market
The housing market has remained resilient this year, with buyers still coming to the table with 8% interest rates. According to Zillow, prices rose 1.8% in the last 12 months (source). If the Federal Reserve does lower rates, it would likely lower mortgage rates as well. A drop in mortgage rates is expected to unleash a flood of activity, potentially raising prices. On the other hand, the National Association of Home Builders Home Price Index, which measures single-family home sales, has been registering a negative outlook since August. This suggests lower prices are ahead (source). One interesting housing fact is that in seven of the last nine recessions, home prices rose, with the exceptions being 1991 (-3%) and 2008 (-15%).
Polarizing Politics
We are roughly one year away from the 2024 presidential election, with early polls giving Trump a slight lead. Given the cultural and political tones in the United States and the world more broadly, 2024's election should be a rollercoaster. Politics aside, polarization can have damaging effects on both internal and external opinions of governmental effectiveness, as cited by Moody and Fitch in their recent downgrades to the US Credit Rating. Furthermore, studies in recent years have shown mergers between politically divergent companies have decreased dramatically. If mergers are reached, post-merger performance is measurably lower for politically divergent companies (source). An important thing to remember is disagreement and discourse are a feature of a democracy, not a bug. It comes in waves; this time in history is no different.
Thanksgiving Classic
Our deepest gratitude to all who participated in our 5th Annual Thanksgiving Classic. Together with PBLA Surveying, we raised $85,000 for Tunnels to Towers. With your support, we more than doubled last year’s donation of $35,000. If you are unfamiliar with the incredible work of this organization, please check out their website at t2t.org. Thank you again to all of our sponsors and attendees for playing and contributing to this great cause! We greatly look forward to next year’s event!
Citrus Wealth Management
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Any opinions are those of Citrus Wealth Management and not necessarily those of Raymond James. The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results.