Weekend Update, December 16th, 2024
Index, Sector & Asset Performance
US stocks enter their last full week of trading for 2024 on a minor daily losing streak that many in the financial media as touting as hiding historically bad breadth in the indexes. Our suggestion is to continue to ignore those doubting Thomas calls for now as most of these scare tactics are coming from many who have missed most if not all of the last two-year rally in stocks.
The S&P 500 closed -0.64% on the week with rate-sensitive sectors leading the decline as longer-term interest rates rose. After a small-cap jump following the U.S election, the market has once again narrowed with large-cap tech names leading the market higher. The drive higher in the communications sector last week was driven by Google’s supercomputer announcement.
Global stock returns year to date:
Fixed income markets sold off last week with the 10-year Treasury at 4.37% after climbing +25 bps last week leading to the 10yr to 3-month yield curve going positive for the first time in over 2 years.
Markets moved to pricing in a rate cut this week and paring back rate cut expectations for 2025, The yield curve re-steepened. The FOMC meeting this week will feature a summary of economic projections, providing a view into members’ expectations heading into 2025. However, please remember that these views are generally just opinions, guesses, and not historically predictive of future interest rate moves by the FOMC or market interest rates.
Economic Indicators and Earnings Commentary
The Fed meets mid-week and announces new policy on Wednesday. Expectations are for the FOMC to cut short term rates by – 25Bps on December 18, lowering the target range for the federal funds rate to 4.25%-to-4.50%. This will bring the total reduction since the Fed began cutting in September to -100 bps. Most analysts look Chair Powell to signal that there are more cuts in store for 2025, but not as fast as current cuts.
Inflation data is running modestly above the Fed’s target. Core CPI rose 0.31%. Shelter increases moderated as expected (reminder that they are not real-time market based), but non-shelter core services prices remain sticky. Goods prices rose slightly due to unexpected gains in auto prices. Core PPI rose +0.2%.
November’s retail sales report on Tuesday. On Friday, the personal spending and income report for November is released.
The 3q24Q3 earnings season is over. Oracle and Adobe reported disappointing outlooks last week while Ciena and Broadcom increased their 2025 outlooks on the back of strong AI spending moving out from the center of the cloud. Here is Goldman Sachs thoughts on 2025 EPS for global indexes with the take away being the US/SP500 is leading 2025 growth expectations again.
Congress faces another government shutdown deadline of this Friday at midnight to approve a short-term spending bill and avert a government shutdown. A continuing resolution will be passed in the coming days to temporarily fund the government into early 2025.
Global Market Trends/Commodities/Currencies
The China economy remains in the “Hurt Locker”. Do not believe the positive data that is released at the government level. According to government data, industrial production rose 5.4% y/y which is suspect given the consumer data remains very weak. For the first time in a few months, retail sales growth slowed to only +3.0% from a year ago, and up +3.5% YTD. The data showed weakness in clothing, jewelry, and cosmetics. Fixed asset investment slowed, rising only +3.3% YTD. The decline in property investment in China got worse, down -10.4% in 2024. Residential property sales fell off a cliff down -20.0% YTD. China’s stock markets sold off this morning with the CSI 300 down -0.5%, the HS China Enterprises down -0.8% and the Chinese currency weaker, CNY to 7.284. The PBoC once again repeated that it will cut reserve ratios and interest rates “at an appropriate time”, and will push for financial reforms, forcefully expand domestic demand and support the property market. However, no detail yet. The set-up for China looks quite like late 2016 Trump 1.0 which had China stocks rocket higher in 2017. Stay-tuned.
Oil prices closed around $70/bbl. Energy prices remain weaker or at best rangebound on the back of weak China demand. Russia’s escalating attacks on Ukraine drove a bid for oil. Gold ended the week near flat.
Bitcoin crossed over $100k and rose to over $105k over the weekend.
Oak Harvest Weekly Stock Talk: The Bull’s Alive in 2025?! What It Takes, A Checklist
Past performance is no guarantee of future results. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.
