Major U.S. Equity Indexes Close the Year on a Mixed Note
The final month of 2024 wrapped up with the major U.S. equity indexes displaying mixed performances. While the Nasdaq 100 achieved an all-time monthly closing high with a modest gain of 0.39%, the S&P 500 saw a decline of 2.50%. Meanwhile, the Dow Jones Industrial Average experienced a significant drop of 5.27%, including a historic 10-day losing streak—the longest since 1978. As we step into 2025, investors are questioning whether these dips present a buying opportunity.
No Santa Claus Rally This Year
December traditionally brings a Santa Claus Rally, yet this year it was notably absent. The month concluded with quarter-end and year-end book squaring, affecting market gains. The first two trading days of January typically continue the rally, but the holiday season this time was far from rosy.
Interest Rates and Bond Yields: A Changing Tune
As December unfolded, rising bond yields caught many by surprise. The 10-year note yield saw a notable increase, settling near the 4.573% mark. The Federal Reserve's shift to a more hawkish stance, after a series of rate hikes in 2023, adds to the uncertainty heading into 2025. Despite these hikes, the cycle high remains at 5%, prompting questions about the opportune time to invest in bonds.
Jobs Data Presents a Goldilocks Scenario
December's jobs report was deemed just right, with an increase of 227,000 jobs surpassing the Dow Jones consensus estimate of 214,000. October’s figures were also revised upward by 36,000. The unemployment rate inched up to 4.2%, aligning with expectations, while notable job growth emerged in healthcare, social assistance, and leisure/hospitality sectors. This balanced labor market scenario keeps hope alive for future rate cuts, although fewer are expected in 2025.
Consumer Inflation Remains Stubborn
November's Consumer Price Index (CPI) data exhibited a 0.3% monthly increase, pushing the annual rate to 2.7%. Despite optimism, inflation remains above the Federal Reserve's 2% target. Market sentiments warmed with the expectation of a December rate cut, which materialized when the Fed trimmed the benchmark rate by 0.25%.
The Fed's Evolving Strategy on Rate Cuts
The Fed's December meeting brought a 25-basis-point rate cut, aligning with market expectations. However, 2025 projections have scaled back from four anticipated cuts to just two. This change prompted heightened market volatility, which has since stabilized.
As we enter 2025, diversification and a commitment to periodic investing in a volatile market remain prudent strategies. For personalized financial insights and strategies, consider reaching out to our team of financial experts.
