The Week in Review: 12-23-24
"The best way out is always through.” ~ Robert Frost
Good Morning ,
The stock market logged sharp declines last week despite the Fed cutting rates.
The week started in better form, but equities hit a wall Wednesday after the Fed implied with its words and guidance that further rate cuts might have to wait until there is more progress on inflation.
Wednesday's session left the S&P 500 178 points lower, the Nasdaq Composite was 3.5% lower, and the Dow Jones Industrial Average closed more than 1,100 points lower, logging its tenth consecutive decline. Ouch!
This followed the FOMC's decision to cut rates 25 basis points to 4.25-4.50%, as expected. It was not a unanimous vote however, Cleveland Fed President Hammack dissented in favor of leaving the target range for the fed funds rate unchanged at 4.50-4.75%.
The Summary of Economic Projections showed that the median estimate for PCE inflation and core PCE inflation was increased for 2024 and 2025, and the estimate for unemployment was decreased for 2024 and 2025.
Additionally, the median estimate for the 2025 fed funds rate was bumped up to 3.9% from 3.4%, signaling an outlook for only 50-basis points of easing in 2025 versus 100-basis points when the September projection was released.
We would note that 2025 is an unknown and the Fed’s moves are “data dependent”, so it would simply be pure speculation to predict 2025 at this point. Global rates are clearly falling and that could put pressure on the Fed to ease.
Rising interest rates put added pressure on stocks. The 10-yr yield jumped 12 basis points to 4.52% and the 2-yr yield settled seven basis points higher.
Small and mid-cap stocks underperformed their larger peers, leading the Russell 2000 to sink 4.5% last week. The S&P 500 declined 2.0%, the Nasdaq Composite fell 1.8%, and the Dow Jones Industrial Average logged a 2.3% loss.
Mega cap stocks held up better than the "rest" of the market, but still garnered selling interest. The equal-weighted S&P 500 fell 3.0%.
The S&P 500 energy sector struggled more than other sectors, falling 5.6%.
The rate-sensitive real estate sector was the next worst performer, dropping 5.0%.
The only sector that settled less than 1.0% lower was information technology, which declined 0.7%.
The market managed to stage a rebound on Friday following the Personal Income and Spending Report for November, which didn't show any improvement in inflation, but importantly, the data was better than some had feared.
The PCE Price Index rose to 2.4% on a year-over-year basis versus 2.3% in October, and core PCE was 2.8%, which was unchanged from October. Consensus estimates however, pegged them coming in at 2.5% and 2.9%, respectively.
This week will be shortened due to the Christmas holiday. Markets will close early on Tuesday and not open again until Thursday morning. There was some positive momentum into the weekend so we will be watching to see if that momentum turns into a Santa Claus rally.
Your trust is a treasured gift, and we are so thankful for an outstanding 2024, we wish you a safe and Merry Christmas, and abundant blessings in 2025!
Michael D. Hilger, CEP®
The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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