October saw broad negative performance across most asset classes, with some resilience in select commodity sectors. Key drivers of market volatility included presidential election uncertainties, renewed inflationary concerns, and rising bond yields, which placed additional pressure on equities and bonds. However, equity markets have since responded favorably to kick off the month of November, with the S&P 500 reaching new all-time-highs after President-Elect Donald Trump was declared the winner of the 2024 presidential election.
“Prominent market figures, including Paul Tudor Jones, have voiced concerns about inflation. Jones warned that “all roads lead to inflation,” pointing to substantial budget deficits under both the Trump and Biden administrations, with minimal emphasis on deficit reduction in recent political campaigns.”
In October, the Personal Consumption Expenditures (PCE) report indicated continued stability in inflation metrics. Both Headline and Core PCE remained relatively steady year-overyear,
with Headline PCE decreasing from 2.27% to 2.02%—the smallest year-over-year increase since early 2021. Core PCE eased slightly from 2.72% to 2.65%. While inflation has shown modest declines over the past year, concerns about a potential resurgence remain, reflected by rising yields across the yield curve, with the 10-year U.S. Treasury yield climbing from 3.74% on October 1st to almost 4.40% by month-end.
Prominent market figures, including Paul Tudor Jones, have voiced concerns about inflation. Jones warned that “all roads lead to inflation,“1 pointing to substantial budget deficits under both the Trump and Biden administrations, with minimal emphasis on deficit reduction in recent political campaigns. The Congressional Budget Office (CBO) projects a deficit of $1.915 trillion for 2024, with an increase to $2.862 trillion by 2034.2 Many investors and market commentators fear that continued deficit spending could exacerbate inflationary pressures, potentially forcing the government to manage its debt burden through inflationary policies.
The Federal Reserve’s 2% inflation target remains a primary objective, though recently a heavier emphasis has been placed on balancing and maintaining labor market stability. Despite inflation concerns, the Fed has expressed optimism that inflation is approaching its goal, as reflected in recent moderation in monthly inflation metrics. The Fed’s rate-cutting cycle, initiated in September, suggests a belief that inflationary pressures are easing, allowing for a shift toward policies that support economic growth.
However, some market participants question whether the Fed’s easing measures may be premature, given persistent fiscal deficits and possible future inflationary pressures. The interplay between Fed policy, fiscal responsibility, and government spending will be crucial as investors monitor potential impacts on interest rates, inflation, and market stability. October’s labor data provided additional context, with job growth coming in softer than anticipated. The economy added only 12,000 jobs, far below the forecasted 100,000, though temporary disruptions such as the Boeing strike and recent hurricanes likely contributed to the lower figures. Revisions to prior months also reduced the job count by 112,000. The unemployment rate held steady at 4.1%, indicating a slowdown in labor market growth that could help reduce inflationary pressures. This softer labor data may further support the Fed’s case for continuing its rate-cutting cycle.
Turning to the election, Donald Trump was declared the winner of the 2024 presidential race on Wednesday morning after securing key swing states. Equities responded positively, with the S&P 500 up 2.53% and small caps, represented by the S&P 600, rising 6.1%. Meanwhile, the 10-year Treasury yield reached a recent intraday high of 4.76%, putting further pressure on the bond market.
Following the election, the Federal Reserve held its FOMC meeting on Thursday and proceeded with a widely anticipated 25 basis-point rate cut, citing a slowdown in labor market and continued progress towards their inflation goal as justification for the additional cut.
Nonetheless, despite the recent rally in equity markets, investor sentiment appears to be cautious about potential tariff policies under the new administration, not only toward China but also other trade partners. If implemented, these tariffs could trigger a one-time increase in the prices of various goods, similar to the impact of a sales tax hike. Should these tariffs drive a meaningful rise in inflation in 2025, the Federal Reserve may feel pressured to limit its federal funds rate cuts to manage inflationary effects.
1. https://www.cnbc.com/2024/10/22/tudor-jones-is-long-gold-and-bitcoin-as-hedge-fund-titan-believes-all-roads-lead-to-inflation.html
2. https://www.cbo.gov/data/budget-economic-data#3
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