2024 | December 2

The Markets

Stocks Gain

Each of the major U.S. stock indexes added more than 1% in a holiday-shortened trading week, extending the previous week’s positive momentum. The S&P 500 and the Dow pushed their record levels higher, while the NASDAQ was fractionally lower than its record set about three weeks earlier.

Yields of U.S. government bonds fell sharply on Monday after President-Elect Donald Trump announced his selection of Scott Bessent to serve as the next Treasury secretary. The yield of the 10-year U.S. Treasury closed around 4.17% on Friday, down from 4.42% at the end of the previous week and a recent intraday high of 4.50% on November 15. Yields of 2- and 10-year notes also slid.

A threat on Monday from President-Elect Donald Trump to impose tariffs on goods imported from China, Canada, and Mexico fueled warnings from those countries about potential retaliatory trade moves. The Canadian dollar and Mexican peso fell sharply against the U.S. dollar, and stocks of selected automakers dropped.

Recent progress in bringing inflation down further has stalled, based on Wednesday’s reading from the U.S. Federal Reserve’s preferred inflation gauge. The Personal Consumption Expenditures Index rose at an annual rate of 2.3% in October, up from 2.1% the previous month. Excluding energy and food prices, the core PCE Index rose 2.8% in October, up from 2.7% in September. 

Although inflation remains above the U.S. Federal Reserve’s 2% long-term target, Fed officials recently expressed confidence that price pressures have been easing and that the labor market remains strong. The statements were included in minutes released on Wednesday from the Fed’s November 6–7 policy meeting. The next Fed meeting is scheduled for December 17–18.

Looking ahead to the next quarterly earnings season, analysts are expecting the strongest quarterly growth rate in three years. Fourth-quarter earnings for companies in the S&P 500 are expected to rise around 12.0%, according to the consensus estimate of analysts surveyed recently by FactSet. That’s roughly double the 5.8% third-quarter growth rate in the earnings season that just wrapped up.

A monthly labor market report due out on Friday will show whether a recent slowdown in U.S. jobs growth extended into November. In October, the economy generated 12,000 new jobs—far below the previous month’s strong gain and the smallest increase since December 2020. In addition, initial jobs gain figures for August and September were revised downward. The unemployment rate was unchanged at 4.1%.

Source: John Hancock Investment Management

AJA Food Drive

There Are A Lot Of Questions About Tariffs

Last week, president-elect Donald Trump took to social media, promising to increase tariffs on China, Mexico, and Canada. One result was that internet searches related to the term “tariffs” increased sharply. These searches included:

• How do tariffs work?
• What is Trump’s tariff plan?
• Things to buy before tariffs
• Tariffs for dummies

Here are a few answers to common questions about tariffs:

What are tariffs? Tariffs are a form of tax that one country assesses on materials, parts, and products imported from another country.

What do tariffs do? In theory, raising prices on foreign goods will protect U.S. companies and jobs by encouraging Americans to buy goods that are produced in the United States. It doesn’t always work that way because the country the U.S. imposes tariffs on is likely to respond in kind, adding tariffs to U.S. materials, parts, and products. A study of the 2018-19 trade war between the U.S., China and other nations found:

“The trade-war has not to date provided economic help to the U.S. heartland: import tariffs on foreign goods neither raised nor lowered U.S. employment in newly protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory U.S. agricultural subsidies.”

Who pays for tariffs? The cost of a tariff is paid by U.S. businesses and U.S. consumers. “The importer who brings the product into the country—be it a car or an avocado—is responsible for the tariff at the port of entry. Customs officials collect the tax, and the money goes to the U.S. Treasury. The importer can pass the cost of the tariff along in the form of higher prices to the consumer. Or, in some cases, the manufacturer or importer may choose to absorb some or all of the cost, taking a hit to the bottom line,” reported Tim Smart of U.S. News & World Report.

How much will tariffs raise prices? After the president-elect announced his tariff intentions, Barron’s estimated “that a 10 [percent] tariff could raise the cost of a new car in the U.S. by 4 [percent] or 5 [percent] without any adjustments from auto makers. That was based [on] imports and where parts and cars are manufactured in North America. A 25 [percent] tariff on Canada and Mexico implies the price jump would be closer to 8 [percent],” reported Al Root of Barron’s.

When countries fight by raising tariffs, it’s called a trade war.

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