Emerging Markets Lag as Fed Comments Stir Caution

The post-election pop fizzled last week with losses across the board. The greatest losses were in Emerging Markets. Emerging Markets has fallen the last few weeks as the dollar has strengthened.  Some analysts have attributed this pullback, at least in part, to the possibility of future tariffs and other policy changes ahead of a Trump presidency. 

That said, the broad domestic market also dropped last week. Small and Mid-cap fared even worse than Large Caps. Sentiment shifted away from growth back toward value. In some respects, this type of pullback is to be expected after a week like the one prior which saw a jump over four and a half percent. 

Possibly the greater impetus for the pullback last week was due to comments made by Fed Chairman Jerome Powell Thursday in a speech in Dallas. In his remarks, he said: 

“We are moving policy over time to a more neutral setting. But the path for getting there is not preset. In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks. The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully. Ultimately, the path of the policy rate will depend on how the incoming data and the economic outlook evolve.“  

These comments were largely copied from his post-FOMC press conference from the week prior that accompanied a 25-basis point cut. However, the words seemed to carry more weight last week. The S&P 500 fell by 60-basis points Thursday on the heels of his comments. The index opened lower Friday, with the majority of the weekly losses occurring that session, going into the weekend. 

Yet, there was a hint of green at the sector level as energy and financials where the two segments that managed to add to their year-to-date gains.  

Treasuries also saw the yield curve rise as the curve steepened ever so slightly from the prior week. 

https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20241107.pdf

https://www.federalreserve.gov/newsevents/speech/powell20241114a.htm

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