If you’ve been an investor for one month, one year, or multiple decades, you undoubtedly know that investment decisions are never made up of one single factor. Instead, it’s more reminiscent of a puzzle, with various pieces of disparate sizes coming together to formulate an image.

As I look out on the final weeks of 2024, there are a few “pieces” worth reviewing and considering

Inflation – Remember when inflation reports were top of the business news feed? The election and this week’s Trump cabinet selections have taken up a lot of the media’s airtime, but there were still two important inflation announcements this week. (Keep in mind that inflation measures rate of change in prices – not price levels. So inflation moderating won’t mean everything will become cheaper – it simply means prices will stop rising)

First up was Consumer Price Index, a report on retail prices. CPI rose 2.6% year over year as of October, slightly above September’s annual reading of 2.4%. On a monthly basis, CPI rose 0.20%. Both reports were in line with expectations, show progress being made, but also confirm that inflation’s decline will not follow a smooth (or straight) path.

There were some surprises in the data – namely a large increase in used car prices (up almost 3% month over month) and another tick higher (also around 3%) in airline prices. The used car change appears to be a one-time dynamic (CPI trails the Manheim used car index by two months and the latter increased for a single only two months ago). Airline fares could be a seasonal dynamic but time will tell.

On Thursday, Producer Price Index data was released, which gives us a look into wholesale prices being paid by businesses. That report showed a 0.2% monthly increase and a 2.4% annual increase, both in line with expectations. This report confirms wholesale pricing is staying stable at low levels, with some outright deflation noted in some categories.

Job Market – Initial jobless claims were released this week, revealing 217,000 claims. This is the lowest level since May but remains historically elevated. This is supportive of some weakness in the job market and likely gives the Fed the cover it needs to move forward with rate cuts (see more below)

Earnings & Cap Ex – we are approaching the end of Q3 2024 earnings season and on the whole, results have been very strong. Of the 462 companies that have reported so far (92% of the S&P 500): 77% beat estimates (by a median of 6%) – even in the face of falling inflation which led many to believe margins had to fall as well (they did not). Further, leading up to the election, many businesses had postponed major cap ex/investment items but with that uncertainty resolved, it’s likely there will be future investments by the corporate sector moving forward

Market Liquidity – as noted last week, there was a meaningful amount of cash on the sidelines heading into the election, with investors opting to sit on the sidelines until the uncertainty was resolved. It is now known that Republics swept all three houses and a meaningful portion of that cash is being deployed back into markets

Dovish Fed – The Federal Reserve reduced Fed Funds by another 0.25% last week and their commentary did nothing to negate the belief they remain dovish (ie: in support of looser monetary policy moving forward by way of lower interest rates). In general, lower interest rates are supportive of added economic activity and investment prices

Valuations – Despite the record run up in equity markets to all time highs, valuations are not too far out of bounds. In addition, margin debt has remained constant for the past several months – a tell tale sign that there is not an excessive level of exuberance or euphoria which can indicate a near-term market top

Putting the Pieces Together

What’s our key takeaway from the above? After a very strong year for investors across all asset classes, we believe markets will remain resilient into year-end (and beyond given the likely economic and political backdrop). With that said, risks remain (as always) and due to parabolic moves in some asset classes and individual companies/positions in the past few weeks, now is an excellent time to rebalance back towards your long-term targets and trim any newly concentrated positions.

Onward we go,