We May Wish November Lasted Forever

November was a month to remember for investors, but next year ... that could be a different story. 

Thanks in large part to an election that delivered clear cut results and potentially a more market friendly administration, equities charged forward. All three major indexes rose between 5.5% to 7.5% for the month, as equities delivered their best monthly returns of 2024. Small caps saw some catch up action after underperforming all year and likely also benefited from the ebbing of tax-loss season as the Russell 2000 delivered nearly an 11% return for November.

Gold took a breather during the month, after seeing strong gains throughout 2024, and the yellow metal posted its worst monthly return of the year. The dollar rising some 3% against the euro since election day and demonstrating overall strength, was a headwind to gold and other commodities. Stocks entered November in overvalued territory using a variety of historical valuation metrics and exited the month further overbought. As I noted in my column Friday, insider selling has notably picked up in recent months. All that said, equities have the ‘Big Mo’ right now and it is hard to bet against stocks continuing to ‘melt up’ in December and closing the books on 2024 on a high note.

But 2025 is likely to be a completely different ball game. Not only will equities enter the year sporting extreme valuations, but will have to deal with the unknowns that come with a new administration. The incoming regime will likely be significantly more business friendly as far as regulations go, but its stance on tariffs is an uncertainty, especially given all the recent rhetoric on this front. It is also a substantial unknown of what the changing of the guard will mean for the Ukrainian conflict and the prospects of peace around the largest land war in Europe since WWII.

Many challenges are ahead for both the economy and potentially the markets. Job growth has clearly slowed in recent quarters. And while the inflation rate has fallen dramatically from its peak in the summer of 2022, many parts of the consumer space are still struggling with the approximate 20% surge in prices in recent years. Higher interest rates continue to negatively impact the housing sector and other parts of the economy and also mean Uncle Sam will pay more than $1 trillion in interest costs in 2025 to service the massive and growing federal debt.

I also believe 2025 will be the year the commercial real estate market will face a day of reckoning on many fronts. Both Moody’s and Trepp reported last week that the delinquency rate on commercial mortgage back securities or CMBS against office properties surged to nearly 10.5% in November. Delinquency rates are also north of 6.5% for these types of loans against retail and lodging properties. In addition, the delinquency rate for multi-family loans has more than doubled over the past six months to nearly 4.2%. The chickens are starting to come home to roost around the massive apartment building spree that took place across many regions of the country following the pandemic, when interest rates were much lower. The extend-and- pretend era likely ebbs in the coming year, which will result in lenders and banks taking significantly higher write-offs and losses on their CRE loan books in 2025. Whether this results in some sort of credit crunch in the coming year is one of many unknowns for investors as we get ready for 2025.

But as we say goodbye to a November to remember, investors for now should be able to enjoy a positive December to close out what has been a solid year for the markets.

At the time of publication, Jensen had no position in any security mentioned.