Transcript:
It's been a dramatic change in sentiment over the last several weeks, you know, when we ended October, clearly there was a lot of I would say, kind of consternation, a lot of concern that interest rates were gonna continue to be higher for longer, we saw interest rates rise through the last several months, kind of on that anticipation, the market actually started to believe into the interest rates need to be higher for longer. And then really, in that first week of November, we started to see some weaker data points. week later, we got a weaker inflation number. And all of that really started to change the psyche of the market going from Hey, we just got ready for higher for longer. Now it's looking like the Fed actually isn't going to have to raise interest rates one more quarter of a point, maybe we'll have cuts quicker than would have thought in 2024. And that sparked a pretty big change in overall, both stocks and bond markets, as yields have fallen. And then also equities rallied quite hard because sentiment got so washed out by the end of October.
One of the big things that gets lost here is though inflation numbers have come down, and inflation looks like it's trending in the right direction. From a consumer standpoint, consumer inflation expectations have actually started to increase quite rapidly again, so interesting dynamic with consumers versus what what the CPI data is reporting. But clearly, you know, the jury's still gonna be out if the inflation fight ustruly over.
Leading economic indicators continued to decline. So 19 months in a row the leading economic indicators have declined. You know, GDP growth has been good, but we continue to see some struggles within the manufacturing, credit, availability, small business confidence, all the things that we look at, from a future standpoint, continue to point to, you know, the overall kind of economic picture continues to look like it's going to be slowing consumer is showing more angst with other confidence levels, and struggling with inflation, and probably unlikely to spend as much as they had this year. So clearly, when we look out, you know, in the next 12 months, we still see a lot of metric measures that concern us from an overall economic standpoint.
What triggered the equity market rally?
Stocks have rallied hard so far in November. Again, sentiment got washed out early, early on, there was a lot of negative sentiment going on a lot of shorts. So we have seen the markets done well, the S&P itself is up almost 10%. A lot of the areas that have done the best have been in some of the most shorted areas. So there's a little bit more of a kind of unwinding and what you call a short squeeze and a lot of places, but also along with interest rates falling, that's done a lot of good work for, again, the technology sector or some of these longer duration equities. Again, a lot of the equities that have been leading all year, they've caught another kind of run here as interest rates have fallen.
Along with the sharp increase in equities, overall valuations on the index level, again, have become a little bit more unfavorable. Back over that 18 times number that we've looked at in the past that has been a challenge over the last several years for the equity market, also a little bit unique, and it is that earnings expectations have really kind of peaked out in its head starting to decline just a little bit. I believe, just since the start of the quarter, the S&P earnings expectations for the index have actually declined by 5%. So expectations for just the fourth quarter, and you saw that just kind of overall for all of 2024 their earnings estimates have started to come down a little bit too. So it's a little bit unusual that you've had such a strong rally with maybe earnings expectations, not also going higher, and you've seen again, you know, Earlier on in the quarter prior to this rally in November, where you saw even companies that were at least coming in relatively good on their, their overall earnings numbers weren't necessarily being rewarded anymore with within the market performance.
So with this unique year, again, we're in such a small number of companies that are really driven the market is really still kind of masked over we sit here today, the S&P is up nearly 20% year over year, or excuse me year to date. But again, a lot of areas of the market have still been left behind. So small caps are, you know, up less than 5%. The equal-weighted S&P 500 is also about around that 5% mark, many sectors are actually negative. So there are still a lot of questions about the health of the equity market. And along with our view on what we still believe is most likely to be a recession before the end of 2024. We continue to really stress the higher quality equities in our portfolios.
Is it time to lock in yield?
Interest rates had risen quite strongly into the end of October. And they've fallen here and in November quite strongly. So it's been a year that we've seen interest rates be volatile. But interest rates really moved up quite strongly over the summer months, if you think about what was going on, oil was actually increasing at that time, and there were some concerns that inflation was really accelerating. But the bigger issue with why interest rates finally kind of rose and rose quite strongly in that September, October period, was finally the buy-in of the market that the Fed was going to continue to raise interest rates higher, they were going to have them there for longer. And with that being cemented in the September Fed meeting, the market, really kind of the buy. And so they took that long, and that we had seen so much throughout the year where the long end was well below the short end that strongly inverted yield curve, a lot of that unwound over the last several months where the yield curve kind of re flattened to a certain degree. So certainly a much different dynamic than what we've been experiencing. But they rose on the belief that rates would be higher for longer here in November, it's been kind of a story where inflation has slowed. Again, in the data point, we saw and now there's a belief maybe there were pivoting away from the higher for longer, and interest rates have fallen quite strongly believe in the Federal Reserve actually won't get to that same type of forecasts that they were just predicting, you know, some short six weeks ago or so