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J. J. Wenrich CFP®

Weekly Market Performance — December 20, 2024‍

Markets Blog

David Matzko, LPL Research


LPL Research provides its Weekly Market Performance for the week of December 16, 2024. A hawkish Federal Reserve (Fed) rate cut drove stocks lower on the week, although quite a few dynamics were in play. Investors juggled deteriorating market breadth, government shutdown jitters, and Fed rate guidance. Cooling inflation today helped markets trim losses before the holiday week. International stocks also felt pressure as weakness in New York spilled overseas, pushing both Europe and Asia lower. Treasury yields resumed their climb following Wednesday’s Fed decision, while commodity markets were dominated by a midweek surge in the dollar.

Index Performance


U.S. and International Equities


U.S. Equities: U.S. stocks closed the last full week of trading in 2024 on a dreary note, succumbing to downward pressure following Wednesday’s much-anticipated Fed rate decision. The S&P 500 ended the week 1.7% lower, the tech-heavy Nasdaq closed 1.4% in the red, and the Dow Industrials shed 2.0% over the last five days. Growth stocks held on better than value, and small cap stocks declined 3.9%. ‍‍‍


As the final touches on holiday decorations were placed and the menu for meals with friends and family were finalized, investors never took their focus off the final Fed meeting of the year. Despite the central bank delivering a third consecutive rate cut on Wednesday, stocks sold off as more attention landed on the surrounding remarks from Fed Chair Jerome Powell and the updated dot plot. Major averages faced their worst session since early August after central bank officials penciled in only two rate cuts for 2025 and upwardly revised inflation expectations. Nonetheless, the slide on Fed Day appeared to be overdone as the Chicago Board Options Exchange’s CBOE Volatility Index (VIX) pulled back from Wednesday’s spike and stocks showed signs of recovery by the week’s end. Already frothy sentiment also weighed on stocks for the duration of the week as major indexes have been plagued by negative market breadth (more stocks declining than advancing) in December, extending the streak to 14 sessions after Thursday’s modest decline. ‍‍‍


Additionally, government shutdown jitters were in play as Congress neared Friday’s deadline to pass a stopgap budget after the first two attempts to secure a funding bill failed. President-elect Donald Trump and Elon Musk did not support the first bill mostly because of too much pork (well over 1,000 pages worth). The second attempt, led by Republican House Speaker Mike Johnson failed to win support of his own party due to the proposal to suspend the debt ceiling to clear the way for other GOP priorities after Inauguration Day. Speaker Johnson stated the House will vote on a third iteration of a continuing resolution Friday evening. In the event of a shutdown, non-essential government employees and civilian contractors would be furloughed. Critical functions like national defense and homeland security continue their work, Social Security and Medicare payments continue uninterrupted, and the U.S. Postal Service will keep delivering the mail.

International Equities: European equities faced their worst week in over three months as read-throughs from Wall Street weighed on the region. Midweek declines were exacerbated on Friday as shares of the region’s largest company by market cap, Novo Nordisk, dragged the broader market into the red. The Danish drugmaker experienced its worst day on record after an experimental weight loss shot fell short of expectations in a recent trial. Broadly, European stocks received some midweek support from macro data as Eurozone consumer inflation arrived below the flash reading. However, rising inflation, a second month of disappointing retail sales in the U.K., and hotter-than-expected producer inflation in Germany rounded out a mixed macro calendar. ‍‍‍


Asian stocks also logged a weekly decline, largely driven by spillover from U.S. headlines and market dynamics. A surge in the dollar after Wednesday’s Fed rate cut acted as a drag on sentiment, leaving central banks rushing to support weakening local currencies. In local headlines, Greater China closed lower despite calls from authorities for swift implementation of economic tasks in 2025, while on the other hand, Beijing announced it would run an increased budget deficit next year, and one- and five-year loan prime rates were left unchanged. South Korea fared among the worst of major markets as an impeachment vote on President Yoon passed over the weekend and 15-year lows in the won acted as a headwind. Taiwan ended lower, despite midweek support from Taiwan Semiconductor (TSM), while Japan and India also declined. New Zealand was the lone major market to log a weekly advance.

Fixed Income, Currency, and Commodity Markets


Fixed Income: The Bloomberg U.S. Aggregate Index traded lower on the week after a steep rise in yields following Wednesday’s hawkish Fed rate cut pushed bond prices lower. The 10-year yield ended the week more than 11 basis points (0.11%) higher, while the rate-sensitive two-year yield was higher by more than five basis points (0.05%) after paring some of Wednesday’s rise. However, the yield curve experienced some steepening as the 2Y/10Y spread hovered near recent highs.‍‍‍


Markets were expecting a hawkish cut at Wednesday’s Fed meeting, where the Fed cut short-term interest rates and signaled fewer cuts in the future. Not only did the Fed deliver on those expectations, but it also surpassed expectations in terms of fewer rate cuts and acknowledged the potential for stickier inflation and increased policy uncertainty. Moreover, Cleveland Fed President Beth Hammack dissented in favor of holding rates unchanged, while three other members also indicated a preference for unchanged rates at Wednesday’s meeting. The combination of the dissent, a slower projection of inflation returning to target, forecasts for fewer cuts to come, and Powell's characterization of rates as “significantly closer to neutral” was seemingly more hawkish than markets expected. While the bond market had largely priced in the prospects of fewer cuts, the potential for stickier inflation and policy uncertainty pushed Treasury yields higher, with the two- and 10-year yields rising by 12 and 10 basis points on Wednesday, respectively. Market pricing has the Fed cutting interest rates one time next year, which is fewer cuts than what the Fed suggested yesterday.


Commodities and Currencies: The broader commodities complex traded lower on the week, as measured by a 1.1% decline in the Bloomberg Commodity Index. Crude prices shed 2.5% on the week as markets continued to fret over global demand due to higher-than-expected borrowing costs in 2025, which could curb future demand. Wednesday’s post-Fed decision surge in the U.S. dollar near two-year highs rippled across financial markets, as a stronger dollar could act as a headwind for crude prices, and Asian currencies including the Japanese yen, Korean won, and Indian rupee experienced notable volatility. The dollar closed the week 0.6% higher on the week. Gold declined 0.8% on dollar strength, trimming losses after Friday’s lighter-than-expected Personal Consumption Expenditures (PCE) print supported the yellow metal. Silver and copper both ended the week in negative territory.


Economic Weekly Roundup


Inflation Rose Less Than Forecast. Inflation rose 0.1% from a month ago, the lowest monthly pace since May, as services prices abated. Despite the softer monthly pace, headline annual inflation rose to 2.4% from 2.3% last month due to year-over-year base effects. Annual core inflation was unchanged at 2.8%. Services inflation decelerated, particularly in the housing and utilities sectors, giving some confidence that this portion of the economy is experiencing a slower pace of inflation. Disposable personal income adjusted for inflation rose 0.2%, putting consumers on good footing as this year closes. ‍‍‍


November inflation was more benign than expected, but the stickiness of some categories supports the Fed’s hesitancy to materially lower rates next year. The economy continues to grow from strong consumer demand as income growth and the wealth effect from higher portfolio values give consumers capacity to spend. ‍‍‍


Q4 Growth Appears Strong. Strong auto sales in November supported headline retail spending. Strong income growth is giving consumers plenty of spending power as we close out 2024. The control group — the category that feeds into the GDP calculations — rose 0.4% after contracting the previous month. Restaurant spending fell for the first time since March, but the levels are still above September figures. Adjusting for inflation, retail sales rose 0.4%, indicating a solid consumer base. November retail activity was solid as consumers have plenty of spending power from higher incomes, rising portfolio values, and stable financial footing.h next year.


The Week Ahead

The following economic data is slated for the week ahead:

  • Monday: Chicago Fed National Activity Index (Nov), Conference Board Consumer Confidence Report (Dec)

  • Tuesday: Building Permits (Nov final), Philadelphia Fed Non-manufacturing Activity (Dec), Durable Goods Orders (Nov preliminary), New Home Sales (Nov), Richmond Fed Manufacturing Index (Dec), Richmond Fed Business Conditions (Dec)

  • Wednesday: Christmas Day holiday; no economic releases scheduled

  • Thursday: Initial Jobless Claims (Dec 21), Continuing Claims (Dec 14)

  • Friday: Advance Goods Trade Balance (Nov), Wholesale Inventories (Nov preliminary), Retail Inventories (Nov)








IMPORTANT DISCLOSURES


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.


Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.


Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.


This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.


Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.


Asset Class Disclosures –


International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.


Bonds are subject to market and interest rate risk if sold prior to maturity.


Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax.


Municipal bonds are federally tax-free but other state and local taxes may apply.


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Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.


Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.


High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.


Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor's holdings.


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