Weekly Market Commentary December 23, 2024
Major U.S. equity indices declined for the week, driven by the Federal Reserve's announcement of fewer interest rate cuts in 2025 than previously anticipated. This news heightened investor caution amid ongoing market volatility.
For the week ending December 20, 2024:
The S&P 500 was down -1.99%
The Dow Jones Industrial Average was down -2.25%
The tech-heavy Nasdaq was down -2.25%
The 10-Year Treasury yield ended the week at 4.53%
The Federal Reserve's recent monetary policy decision and a series of economic indicators have painted a complex picture of the U.S. economy as 2024 draws to a close. The central bank announced its third consecutive rate cut of the year, lowering the federal funds rate by 25 basis points to a range of 4.25% to 4.5%. This decision came despite higher-than-anticipated inflation data, with the Consumer Price Index (CPI) rising 0.3% in November. The market's relatively calm reaction suggests that inflation concerns may be taking a backseat to other economic factors.
The labor market continues to show resilience, but subtle signs of weakening have emerged, becoming a more critical factor in shaping market expectations for future monetary policy decisions. Initial jobless claims decreased to 220,000 from 229,000, while continuing claims saw a slight decline from 1,890,000 to 1,874,000, indicating a still-robust job market with some signs of moderation.
Economic indicators released in the lead-up to the Fed meeting provided a mixed outlook across various sectors. The Purchasing Managers' Index (PMI) data revealed a slight contraction in manufacturing activity with a reading of 48.3. The housing market showed divergent trends, with building permits rising by 6.1% while housing starts fell by 1.8%. Third-quarter gross domestic product (GDP) figures were revised upward to a 3.1% annual growth rate, reflecting stronger consumer spending and exports. However, the Philadelphia Fed Index's significant decline to -16.4 pointed to contraction in regional manufacturing activity. On a positive note, existing home sales reached a six-month high, increasing 4.8% from October.
The Personal Consumption Expenditures (PCE) data, the Federal Reserve's preferred inflation measure, showed a 2.4% annual increase, slightly below expectations. Separately, the Conference Board Leading Economic Index® (LEI) for the U.S. increased by 0.3% in November 2024, marking its first rise since February 2022. This positive sign for future economic activity was supported by improvements in building permits, equity markets, and manufacturing hours worked, as well as fewer initial unemployment claims.
The aforementioned array of economic indicators will play a crucial role in shaping market perspectives on economic growth, inflation trends, and the Federal Reserve's policy trajectory as we move into 2025.
The Fed's updated projections now anticipate fewer rate cuts in the coming year, with only two reductions totaling 50 basis points expected in 2025, down from the full percentage point of cuts projected in the previous quarter.
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