Posted: 12-10-24 | Innovia Wealth
Market Dynamics
November—even better than expected
An uncontested election outcome proved to be good for investment markets and a smooth political transition. So far, we have seen outsized returns for stocks, with smaller businesses benefiting the most (up 11%) and large companies gaining handsomely (up 5-6%). Only international shares under-performed this last month (down -0.3%) mostly on a stronger U.S. dollar and tariff worries. As you can see in the chart below, bond yields bounced up and down on election and inflation news throughout November. In the end, the benchmark bond index generated a 1.1% return. Inflation ticked up year over year, which made fixed income markets nervous. Together, higher inflation and strong job markets will likely keep the Federal Reserve from cutting interest rates by much. This is good news for economic growth, but not for those betting on lower rates or hoping for a housing market rebound fostered by improving affordability.
The 10-year Treasury rate has been volatile on election and economic news.
December—the most positive month for financial markets
December usually comes with a Santa Claus rally for stocks (see chart below; stocks gain 73% of the time). This seems a likely bet with buoyant investors and an optimistic incoming political party. Some market volatility could occur as the incoming administration announces political initiatives and executive appointments that market participants second-guess. Investors will also peer into next year with 2025 return forecasts and estimates for company earnings. On the policy front, there is one more Federal Reserve meeting and an inflation report in December that could set the tone for next year. Geopolitical issues continually are a low-likelihood risk, yet the U.S.’s changing of the guard might incent adversaries to seize the moment. December is more likely to be benign, though, and there will be few reasons for concern until late January or even spring when the impact of political initiatives, earnings reports, and changing economic fundamentals are clearer to market participants.
Stocks tend to do well in December.
We recognize that ebullient markets may be approaching an overvalued status in some sectors and see this as a good time to consider rebalancing accounts where large growth positions might have become too large. We see value in small and international companies, as well as corporate and mortgage-backed fixed income. There are good opportunities in private markets as well, ranging from credit and real estate to infrastructure and equity. We are putting together new ways to invest in the private markets that we hope will be simpler for clients and allow us to more adeptly allocate to opportunities on your behalf. Have a Merry Christmas, Happy New Year, and we look forward to reporting on our efforts.
Private Markets Pulse – Aligning Fees with Performance: Invested vs. Committed Capital
Investing in private equity under an assets under management (AUM) fee structure based on invested capital ensures clients only pay fees on the funds actively deployed and generating returns. For example, if a client commits $1 million to a private equity fund but only $400,000 is invested in the first year, an AUM fee of 1% would result in $4,000 in fees. In contrast, a 1% fee on committed capital would charge $10,000 annually, regardless of how much capital is legitimately invested and put to work. This structure reduces the cost burden in the early stages of a fund’s lifecycle and aligns fees with the value being managed. Overall, it promotes transparency and cost efficiency, ensuring clients benefit from a more performance-driven fee model.