Market report shows strong November performance driven by US consumer and Fed rate cuts

The Oklahoma City Employee Retirement System meeting on December 12, 2024, provided a concise overview of the market performance and portfolio updates for November. The report highlighted strong global growth, primarily driven by robust consumer spending in the United States.

Inflation rates remained stable, prompting the Federal Reserve to cut interest rates by 25 basis points in early November, following a 50 basis point cut in September. Market analysts anticipate another rate cut in December, although uncertainty looms regarding potential changes in policy with the new administration.

In November, small-cap stocks emerged as the top performers, increasing by 11%, while large-cap U.S. stocks rose by 5.9%. Year-to-date, small-cap stocks have gained 21.6%, and large-cap stocks have increased by 28.1%. Notably, small-cap stocks are now outperforming large-cap stocks on a one-year basis, marking a reversal in trends.

Conversely, non-U.S. stocks faced challenges due to a strong dollar, resulting in a slight decline of 0.5% for developed markets and a 3.6% drop for emerging market equities. The favorable market reaction to the recent election results and the anticipated pro-business policies of the new administration are expected to benefit small-cap stocks, while potentially impacting larger multinational companies negatively.

In the bond market, the U.S. aggregate index saw a modest increase of just over 1% in November, with a year-to-date rise of 2.9%. Following the election, interest rates initially rose but later fell in anticipation of another Fed rate cut.

Looking ahead, while U.S. equities, particularly large-cap and small-cap stocks, have continued to perform well in early December, expectations for 2025 are tempered due to rising valuations and bond yields. The meeting underscored the importance of monitoring these developments as they could significantly influence market dynamics in the coming year.