Markets Stumble into the New Year

Nicolet Wealth Management Monthly Newsletter

Investors Take Gains

In December 2024, the S&P 500 index (large U.S. companies) dropped -2.4%, led lower by the value segment of the stock market declining -6.8%. In fact, the growth segment of the market was able to eke out a gain of 0.9% on a few companies driving returns like Google and Tesla. Despite a bad month of returns, the S&P 500 index still advanced 25% in 2024, led predominantly by the growth segment rising 36%.

More Rate Cuts

Federal Reserve officials, led by Fed Chair Jay Powell, proclaimed in their December 2024 meeting that interest rates remain too restrictive based on inflationary and job market activity. As a result, the Fed cut the the target policy rate to a range of 4.25%-4.5%. Fed Chair Powell added that interest rates were still “meaningfully” restraining economic activity and that more cuts would be considered. However, the Fed’s new quarterly forecasts only see their benchmark rate reaching a range of 3.75%-4% by the end of 2025, or two 0.25% rate cuts over the next year. The timid rate cut path is a result of stalling inflation above the Fed’s 2% target.

 

 

Rates of Long Bond Maturities Rise

Long bond maturities, such as the 10-year Treasury Note, are more influenced by market forces as opposed to shorter maturities that are more influenced by Federal Reserve target rate policy. In December 2024, the 10-year Treasury yield advanced 0.38% to a level of 4.57%. Interestingly, the 10-year Treasury yield increased 0.87% from the beginning of the rate cut regime through the end of 2024. A few reasons can explain the recent uptick in the 10-year Treasury yield amid the Federal Reserve’s rate cut regime. First, recent inflation data suggest that inflation may have stalled. Secondarily, economic growth continues to be resilient. Both factors have contributed to investors reassessing expectations of interest rates higher than previously predicted.

Consumers Say One Thing and Do Another

U.S. retail sales increased 3.8% between November 1 and December 24, as retailers increased promotions to entice customers for the holiday shopping season, according to data from Mastercard. Online sales rose at a faster pace of 6.7%, compared with a rise of 6.3% last year, with most of the spending occurring during the biggest promotional e-commerce periods. This strong spending over the past couple of months contrasts with consumer surveys, which declined more than expected in December. The U.S. Consumer Confidence Index, a survey of consumers administered by the Conference Board, showed for the first time in three months that confidence unexpectedly dropped. A measure of expectations for the next six months and a gauge of present conditions both dropped, with some concerns over prices of durable goods in the face of potentially higher tariffs.

Q4 2024 Earnings Season Preview

In the final quarter of 2024, the S&P 500 index, a group of the largest U.S. stocks, is expected to grow 11.9%, down from the initial estimate of 14.6% on September 30. It would be the highest growth rate since 2021 and mark the sixth consecutive quarter of year-over-year earnings growth for the index. Seven of the eleven sectors are projected to report growth, with six of the seven sectors predicted to report double digit growth. For the entire year of 2024, this would leave the stock market with an earnings growth rate of 9.4%, led by the Technology, Financial, Communication Services, and Consumer Discretionary sectors. Earnings growth remains the most important catalyst behind stock market performance.

 

 

Although we believe it to be reliable as of the publication date and have sought to take reasonable care in its preparation, all information provided is FOR INFORMATIONAL PURPOSES ONLY and we make no representations or warranties regarding its accuracy, reliability, or completeness and assume no duty to make any updates in the event of future changes. Past performance may not be indicative of future market results. Any examples used (including specific securities) are generic and meant for illustration purposes only and are not, and should not be interpreted as, offers to buy or sell such securities. To the extent indices are referenced, please note that you are not able to invest directly in an index.

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