Last week’s developments mark one of the most pivotal weeks in recent memory.
First, let’s examine the Fed. The November meeting brought the expected rate cut but left room for flexibility. Fed Chair Jerome Powell’s omission of phrases like “further progress” toward inflation highlights the Fed’s subtle admission that inflationary progress plateaued in recent months. Powell’s stance on rental inflation—aligning with our own view on lagging rental data—demonstrates the Fed is now fully aware of the disinflationary forces in the housing sector.
I still anticipate a 25-basis-point (bp) cut at the next meeting in December but it’s not a slam dunk. The upcoming meeting will hinge on this week’s CPI, PPI, and retail sales data, as well as the November jobs report. If these data surprise to the downside, we will see more pressure on the Fed to cut again.
Turning to the U.S. election, a sweeping Republican victory stirred both the bond and equity markets. The bond market initially reacted with a rate spike signaling caution on potential deficit expansion and inflationary consequences of tariffs. The brief 20 bp spike sends a clear warning to Washington: unchecked deficits will be met with higher yields and borrowing costs. Yet bonds recovered by the end of the week, awaiting the GOP policy.
The stock market, meanwhile, rallied on the GOP sweep, as investors priced in the likely extension of corporate tax cuts and regulatory ease, both of which favor equity markets. Trade policy will see renewed scrutiny. Trump’s aggressive trade rhetoric—including the potential for a 60% tariff on Chinese goods—spark fears for companies relying heavily on Chinese imports. However, I expect this rhetoric to soften. Historically, Trump has used tariffs as a negotiation tactic rather than an endpoint. Regardless, the trend toward nearshoring—shifting production from China to Mexico or India—will continue, reshaping the global supply chain in a way that reduces dependency on any single country.
For investors, it’s essential to watch these developments for potential volatility in the bond market. As the Fed inches closer to rate cuts and the Republicans settle into power, bond yields may trend upward. I see 4.5-5% as a more natural level for the 10-year bond to settle into.
Equities, on the other hand, appear well-positioned to benefit from sustained corporate tax policies and lighter regulations, a combination that should support earnings. Corporate earnings have continued to impress, and with no immediate breakdowns in tech’s big players, I do not see a downturn for equities in the near term. With inflation easing on essential items like oil and ongoing global cooling in commodity prices, the environment is favorable for continued economic stability.
The “bull market” sentiment remains intact, though valuations remain a watch point. Expectations of earnings growth are very high for 2025, and although I see no immediate cracks in this positive outlook, especially as productivity gains support a 2-2.5% inflation rate consistent with a stable economic expansion, next year is not likely to produce the gains that this year did.
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Professor Jeremy J. Siegel
Senior Economist to WisdomTree and Emeritus Professor of Finance at The Wharton School of the University of Pennsylvania
Past performance is not indicative of future results. You cannot invest in an index. Professor Jeremy Siegel is a Senior Economist to WisdomTree, Inc. and WisdomTree Asset Management, Inc. This material contains the current research and opinions of Professor Siegel, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such. The user of this information assumes the entire risk of any use made of the information provided herein. Unless expressly stated otherwise the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.
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