WEEKLY MARKET UPDATE 12/20/2024

Despite the S&P 500 rebounding over 1% on Friday, its best day since the November 6th post-election rally, stocks and bonds had a tough week.  As expected, on Wednesday the Federal Reserve cut interest rates for the third consecutive time.  However, the market threw a fit as the Federal Reserve significantly reduced its forecasts for future rate cuts while also raising its inflation expectations.  As a result, the S&P 500 fell almost 3% on Wednesday, its second worst day of the year as investors worried the Fed was shifting to a more hawkish policy stance.  However, while Wednesday’s action was indeed jarring, it is worth noting that many areas of the market had already shown signs of pricing in such a policy shift, most notably the Dow Jones Industrial Average, which had a nine-day losing streak end on Thursday, its longest since 1978.

While December’s market action has left investors feeling less than jolly, we view this week’s events as a healthy recalibration of investor expectations as well as an acknowledgement from the Fed that the economy is stronger than many feared.  Ultimately if economic data continues to surprise to the upside, we believe the setup for stocks into 2025 is attractive. 

Fortunately, the data that followed Wednesday’s Fed meeting, was indeed strong.  For example, Thursday’s Q3 GDP came in better than expected (3.1% vs 2.8% expectations) while the Leading Economic Index posted its first month-over-month rise since February 2022.  Friday’s inflation report, the PCE, also came in lower than expected and reassured investors that inflation is not reaccelerating.  Next week will be a quiet and abbreviated week of trading due to Christmas, but the official window for a Santa Claus rally starts on Tuesday and will run through the first two-trading days of January.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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