Markets Blog
David Matzko, LPL Research
LPL Research provides its Weekly Market Performance for the week of December 2, 2024. Major U.S. indexes ended mostly higher this week after the S&P 500 capped the best month of 2024 to end November. Daily gains were relatively narrow throughout the week; however, technology and consumer discretionary stocks powered the market higher on the latest boost in artificial intelligence (AI) enthusiasm. European and Asian equities also advanced, shrugging off respective political developments for both regions. U.S. Treasuries ended flat, as the bond market analyzed various Fed-speak and macroeconomic data. Meanwhile, oil dipped on OPEC+ headlines and the U.S. dollar edged higher.
Index Performance
U.S. and International Equities
U.S. Equities: After capping the S&P 500’s best month of the year, the benchmark equities gauge climbed further into positive territory to start December. In an advance broadly powered by technology stocks, the S&P 500 added 0.8% while the Nasdaq fared the best of the three major indexes, adding 3.2%. The Dow edged 0.6% lower, weighed down by healthcare and financials. Growth stocks rallied while value ended the week lower, and small caps declined 1.4%.
Following a holiday shortened week, markets were greeted by good holiday shopping news as they returned to their normal schedule. While the overall tone for equities this week was positive, the fresh all-time highs set throughout the week were reached on relatively narrow gains. Early week gains were attributed to technology and consumer discretionary index heavyweights, before the weekly advance broadened slightly on Wednesday as all three major indexes scored record high closes. Artificial intelligence (AI) enthusiasm was in play after Salesforce (CRM) and Marvell Technology (MRVL) delivered positive results on AI-fueled growth, before markets briefly entered waiting mode ahead of Friday’s much-anticipated November payrolls and employment report. A slight uptick in unemployment and a larger-than-expected increase in nonfarm payrolls bolstered Federal Reserve (Fed) rate cut bets, sending stocks mostly higher on the day. With a bit of cautious, but not discouraging, Fed-speak during the week (including Fed Chair Jerome Powell stating the economy is in very good shape), market attention is turning back towards Powell and Company ahead of the rapidly approaching December 18 rate decision.
International Equities: European stocks overcame a busy week of headlines, shrugging off political turmoil to log strong weekly gains. This week’s big story was the vote of no-confidence for French Prime Minister Michel Barnier’s administration, toppling the French government. However, French stocks rallied on the decision as investors hoped that the proposed tax hikes from Barnier’s government would fail to take shape. Furthermore, French indexes extended gains on Friday after President Emmanuel Macron announced he would serve his full term through 2027 and name a new Prime Minister within a few days. Elsewhere, European equities found support on dovish remarks from European Central Bank (ECB) officials ahead of next week’s ECB rate decision. Plus, German stocks rallied to all-time highs and major index milestones.
Asian stocks ended broadly higher, as the region overcame political developments and headlines of its own. South Korea was the lone market to log a weekly decline, dragged lower after President Yoon Suk Yeol briefly imposed martial law. The opposing government party subsequently moved to impeach the President, while the ruling party opposed the motion, setting up an impeachment vote scheduled to take place on Saturday. Meanwhile, Taiwan outperformed across the region as technology stocks followed in Wall Street’s footsteps in boosting indexes with a strong rally. Japan logged a solid weekly advance, propped up by hopes of higher rates after Bank of Japan (BOJ) Governor Ueda stated rate hikes are near due to on-track economic data. Greater China marched higher despite early week headlines around trade sanctions with the U.S. from both nations.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg U.S. Aggregate Index traded relatively flat on the week after yields pulled back from intraweek highs. Treasury yields faced steep drops after Fed Chair Powell’s interview on Wednesday, and fairly choppy price action following Friday’s employment data and bolstered rate cut bets. The 10-year yield ended the week almost two basis points (0.02%) lower, while the rate sensitive two-year yield shed nearly six basis points (0.06%).
One of the more popular trades within the fixed income markets this year has been the expectation of a steeper U.S. Treasury yield curve where investors either expect the short end of the curve to fall and/or the back end to either stay put or even rise. However, over the past few months, the curve (as per the 2Y/10Y curve spread) has flattened and even turned negative this week. After peaking at 0.22% in September (meaning the 10-year was higher than the two-year by 0.22%), the difference between twos and 10s is only around 0.06%. Stronger economic data has priced out the need for the Fed to aggressively cut short-term interest rates and now with recent commentary suggesting the Fed is in no hurry to cut rates, the front end of the curve has stalled at current levels, which has kept the long end range bound. However, if the Fed pauses too long or if they suggest the “neutral” rate is higher than market expectations, markets may become concerned about the deleterious impact of high interest rates, which may actually cause long-term interest rates to fall, further tightening the spread between short, and long-term interest rates. On average, the 10-year yield is higher than the fed funds rate by about 1% so we think the yield curve will eventually go back to its upward sloping shape, but that may not happen until the middle of next year.
Commodities and Currencies: The Bloomberg Commodities Index traded nearly 0.6% lower over the last five sessions in choppy trading. Crude oil ended the week 1.3% lower after erasing midweek gains as investors digested the decision from OPEC+ to delay and extend production cuts on expectations that supply will begin to outpace demand. However, the extension of production cuts over 18 months instead of 12 months will likely offer some support to prices going forward. Gold ended the week slightly lower in mostly rangebound trading ahead of U.S. jobs data. Prices briefly pulled back following the rebound in U.S. hiring data released on Friday to end 0.3% lower. Silver and copper both delivered solid weekly gains. In currencies, the U.S. Dollar Index rose modestly, bouncing back from mostly weaker trading on better-than-expected consumer optimism around the economy.
Economic Weekly Roundup
Jobs Rebounded and Unemployment Rose. November payrolls increased by 227,000 after rising only a revised 36,000 the previous month. After receiving some additional surveys, October payroll growth was revised upward but still anemic and heavily impacted by hurricanes and a strike.
The November unemployment rate rose to 4.2% as LPL Research suspected, given the rise in those continuing to collect unemployment benefits along with a drop in labor participation. The 3-month average growth in payrolls is 173,000, which is somewhat of a goldilocks scenario; not too hot, and not too cold. The number of long-term unemployed (those jobless for 27 weeks or more) was 1.7 million, up from 1.2 million a year earlier and accounted for 23.2% of all unemployed people. Employment in leisure and hospitality rose by 53,000, significantly higher than the annual average monthly gain of 21,000. Average hourly earnings are up 4% from a year ago, rising faster than the pace of inflation.
Real wages continue to grow, giving consumers the ability to maintain spending habits despite elevated prices. The rise in the unemployment rate should give the Fed an opportunity to cut interest rates later this month but if they do, the Fed will likely pause in January unless inflation stats decelerate meaningfully.
Labor Market Loosening. Labor markets are getting closer to normal after several years of tightness, per the Job Openings and Labor Turnover Survey (JOLTS) for October. Fed Chair Powell’s oft-cited ratio of openings-to-unemployed has fallen off the 2022 highs and now back to pre-pandemic levels. Quit rates are below pre-pandemic levels as job turnover has slowed. The uptick in those continuing to collect unemployment benefits shows a slight cooling in hirings. The Fed’s decision on December 18 will be a close one, but if the majority of voting members prioritize the employment mandate, markets should expect a cut in policy rates, supporting risk appetite.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: Wholesale Inventories (Oct final), Wholesale Trade Sales (Oct), New York Fed 1-year Inflation Expectations (Nov)
Tuesday: NFIB Small Business Optimism (Nov), Nonfarm Productivity (3Q final), Unit Labor Costs (3Q final)
Wednesday: MBA Mortgage Applications (Dec 6), CPI (Nov), Real Average Hourly Earnings (Nov), Real Average Weekly Earnings (Nov), Federal Budget Balance (Nov)
Thursday: PPI (Nov), Initial Jobless Claims (Dec 7), Continuing Claims (Nov 30), Household Change in Net Worth (3Q)
Friday: Import Price Index (Nov), Export Price Index (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.
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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.
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Asset Class Disclosures –
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