In this month's issue:
Post-Election Portfolio Positioning
Mark Luschini
A politically unified government under Republican control establishes a cohesive framework for what we are likely to see evolve over the coming months and quarters, derived from the policies under which President-elect Trump campaigned. Generally, the Republican platform includes deregulation, less stringent antitrust enforcement, tax cuts, tariffs, and immigration curbs. Market participants initially reacted positively to the outcome. The melt-up in stock prices, especially those representing some of the riskier corners of the market, was rational if a bit exuberant. Subsequent market action has naturally been a bit choppier as investors digest those gains delivered so rapidly and position or rebalance for the next move.
Only two days after the election, the Federal Reserve (the Fed) eased monetary policy a further 0.25% to 4 5/8%, the lowest level since March 2023, which reinforced expectations that further disinflation will allow the Fed to loosen in subsequent meetings and continue to foster the solid pace of growth experienced this year into next. The Fed is becoming less restrictive as it has gained confidence that inflation will return to the central bank’s target of 2%. Indeed, Chair Jay Powell communicated that the Fed remains on an easing path, but admitted the pace and ultimate endpoint of that easing will be determined over time, based on incoming data. What seems clear is that the Fed’s onus has shifted from triaging inflation to unemployment. Since the job market is key for promoting consumption, the primary driver of the economy, steady employment, and positive real wage growth will have to be sustained to avoid an economic downturn. The good news is although labor conditions have cooled, the job market is still performing well enough to keep employment levels firm.
Tax-Loss Harvesting
Guy LeBas
Tax-efficient trading is one of the lower-risk ways to improve after-tax investment returns. Within the fixed income markets, the most common version of tax-efficient trading is tax-loss harvesting—selling a bond or bonds to realize a capital loss and reinvesting the proceeds in a similar bond or bonds to maintain the same sort of interest rate, credit, and sector exposures. As of early December 2024, bond market returns based on the Aggregate Bond Market index and many sub-indices are positive. Most of that return is from coupon payments, as interest rates are higher than they were at the beginning of the year and bond prices slightly lower, in contrast to 2023. That situation opens a limited number of tax-loss harvesting opportunities in the final days of the trading year. Here’s where loss harvesting works in the bond markets—and where it does not.
Almost a Wrap
Gregory M. Drahuschak
As November ended, the S&P 500 was on pace for the best annual monthly average in 74 years while setting 53 new closing highs.
A December gain in the S&P 500 would be the tenth monthly gain this year and make this year one of only 11 years when the S&P ended with gains in 10 or more months (1954, 1958, 1964, 1972, 1974, 1995, 1996, 2006, 2013, 2017, and 2019). The closest to monthly perfection was in 1958, 2006, and 2017, when the S&P had gains in 11 months. No year had all months lower. Losses in 11 months happened only once in 1974 when the year ended with an S&P 500 at a 9.72% loss.
You can read the full Investment Perspectives here.
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