The death of former President Carter on Monday means that, in keeping with tradition, US stock markets will be closed this coming Thursday, January 9th for the funeral.
Monday was the penultimate trading day of 2024 and the session kicked off with more end-of-year institutional position adjustments and momentum-unwinding across the board. This put stocks very much on the back foot again, crystallizing the distinct absence this year of any kind of Santa Claus rally.
What started out as a mildly concerning fall in stock prices threatened to snowball into a really ugly session with the major indexes at one point all facing losses of over 2%, but dip-buyers came to the rescue, slicing the losses to “only” around 1% on the day. Still, the entire“Trump-bump” post-election gains were erased after less than eight weeks.
The best-ever consecutive two calendar year stretch this century for the S&P 500 came to a close on Tuesday, but went out with a whimper. The indexes dropped further over the session, dragged down primarily by continuing falls in the prices of 2024’s biggest darlings in a low trading volume environment.
The festive season’s poor performance was obviously disappointing, but it’s important to understand that nothing substantially negative occurred and institutional year-end rebalancing (selling big winners and reallocating to laggards), low volumes and “B-teams” manning the trading desks were all major contributors to the pullback.
Also, these two back-to-back middle-of-the-week holidays don’t come often but when they do, they essentially create two dead weeks in the market with low liquidity which can generate exaggerated moves in either direction that are not necessarily reflective of prevailing sentiment.
As they say at Boeing, when one door closes, another one opens. So it was a different landscape that faced traders when they returned to their posts on Thursday to make a start on the new year. Late December’s window-dressing was in the rear-view mirror and focus could return to the opaque subject of trying to figure out what lies ahead in 2025 and beyond.
Stocks began in a cautiously hopeful mood, but turned around and took a dive in the afternoon on the back of a bad miss on Tesla vehicle sales to finish the day moderately lower across the board.
Domestic politics reared its head again on Friday. Biden blocked Nippon Steel’s takeover of US Steel, whose stock promptly plunged on the news. The House Speaker vote in Congress ended up not being quite the embarrassing shit-show it might have been as Johnson squeaked in with slimmest majority in a Speaker vote since 1930.
Stocks moved solidly higher, partly as a result of the dodged congressional bullet. Tech very much led the way in a monster snap-back for Wall Street following five consecutive sessions of daily losses but the S&P 500 and the NASDAQ still ended in the red for the week, however.
The stock market has pulled forward a lot of future positives, so simply fulfilling those expectations won’t of itself push stocks materially higher. The market got interest rate cuts in 2024 and now expects more of them, so the Fed cutting one or two times won’t be enough to propel markets meaningfully higher from here. Investors priced in a soft landing in 2024 and it materialized, but now it needs to stay there and a substantial slowing of the economy will spark hard landing fears but then any surprise acceleration will reduce the likelihood of any further interest rate cuts, which markets won’t take well.
However, higher expectations don’t mean stocks can’t rally in 2025. They absolutely can. But it’s going to take new, additional positive surprises to make that happen. These include i) actual tax cuts and deregulation that’s quicker and more effective than expected, ii) the Fed cutting more than twice on the back of inflation falling quicker than expected, iii) actual resolution of the ongoing wars in Ukraine and the Middle East and iv) compelling evidence that AI is finally starting to actually boost profitability and productivity for end-user companies and not just making chip companies earnings explode higher.
If some or all of those things happen, then stocks could absolutely move higher in 2025. However, the growing interplay of politics, economics and markets will make the paths of stocks, bonds, commodities and currencies even harder to read than usual.
There’s no respite before we have to face all of this, there are a number of important dates to circle on the calendar just in the next month:
Jobs Report on Friday, January 10th, the Fed is extremely focused at the moment on this data point
Q4 2024 earnings season starts on Monday, January 13th, markets still anticipate double-digit earnings growth in 2025
CPI retail inflation reading on Wednesday, January 15th, will it remain sticky or even shift higher?
Trump’s inauguration on Monday, January 20th, with likely immediate executive orders
Fed interest rate decision on Wednesday, January 29th, markets are currently expecting no cut
The fundamentals for this market are good as we start 2025, but there are also great expectations and meeting those expectations starts right away and these are the key events that will likely determine if those positive expectations are met (and stocks start the year with gains) or if we see a continuation of the declines of the past two weeks.
OTHER NEWS ..
Warning! .. Alcoholic drinks like beer and wine should carry warnings of their links to cancer, the US’s top doctor said. Evidence of links between drinking and cancer has been rising for decades, yet fewer than half of Americans recognize that it raises their chances of developing several cancers, Surgeon General Vivek Murthy said Friday.
Alcohol causes about 100,000 cases of cancer and 20,000 related deaths each year in the US, far more than the 13,500 alcohol-associated annual traffic fatalities. Adding a cancer warning would highlight severe health concerns for products that more than 70% of US adults consume at least once a week, with some $260 billion in 2022 nationwide sales.
The prices of shares of drinks makers from around the world fell hard after the announcement.
Hindenburg’s Latest Victim .. Carvana is the latest firm to be targeted by prominent short-seller Hindenburg Research of high levels of impropriety in a report alleging the auto retailer’s loan portfolio carries substantial risk and that its apparent growth is unsustainable and essentially fake. Hindenburg took a short position on Carvana’s stock after conducting extensive research that included interviewing former employees.
The report, titled: “Carvana: A Father-Son Accounting Grift for the Ages,” makes a number of claims, including that Carvana has very lax underwriting standards and uses a company owned by the father of CEO Ernest Garcia III to boost results.
Hindenburg’s previous reports of dodgy dealings at various firms have tended to mostly vindicated eventually, despite squealing denials at the time from all their “victims” and Carvana’s reaction last week was no different.
Luxury Costs More .. Rolex raised prices on some of its most popular models after gold values surged in 2024. The biggest luxury Swiss watch brand began the year by hiking prices as much as 8% on some models made from precious metals.
A yellow gold Day-Date with a 40-millimeter black dial now costs over $45k as of January 1st, up from $42k, according to Rolex’s website in France. A yellow gold GMT-Master II costs $46k, up from $42,500.
Price increases can be indicative of the demand for premium luxury products, the cost of materials and labor as well as inflation. Gold recorded its biggest annual price increase in 14 years in 2024, soaring 27%.
ARTICLE(S) OF THE WEEK ..
I hate to be a party-pooper, but are you prepared for the tax consequences of all those crypto gains from 2024? You’d better be, because the IRS sure is.
THIS WEEK’S UPCOMING CALENDAR ..
Markets will be closed on Thursday in a traditional observance of the death of former President Carter,. This will make for an unprecedented third consecutive four-day trading week.
Friday is a very big day when the highlight of the economic calendar this week is the Jobs Report and the Supreme Court will hear arguments in the highly anticipated TikTok ban case.
The same day will also see a trickle of earnings releases from S&P 500 members Constellation Brands, Delta Airlines and Walgreens Boots Alliance to officially kick off Q4 2024 earnings season. But the real earnings action doesn’t begin until January 15th with multiple big banks reporting.
The Fed releases the potentially quite intriguing minutes from its mid-December interest-rate setting meeting on Wednesday.
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) - up 3.5% for the week.
Last week’s worst performing U.S. sector: Consumer Cyclical (two biggest holdings: Amazon, Tesla) - down 2.8% for the week.
SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price fell 1.6% last week, is up 0.2% so far this year and ended the week 2.6% below its all-time record closing high (12/06/2024).
IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price fell 0.5% last week, is down 0.6% so far this year and ended the week 7.5% below its all-time record closing high (11/08/2021).
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
⬆︎ 6.91%
One week ago: 6.85%, one month ago: 6.69%, one year ago: 6.62%
Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
FEDWATCH INTEREST RATE TOOL:
Where will interest rates be after the Fed’s next meeting on January 29th?
Unchanged from now .. ⬌89% probability (89% a week ago)
0.25% lower than now .. ⬌11% probability (11% a week ago)
What is the most commonly expected number of 0.25% interest rate cuts in 2025?
⬇︎1 (down by one from a week ago)
All data based on the Fed Funds interest rate (currently 4.375%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
% OF S&P 500 STOCKS TRADING ABOVE THEIR 50-DAY MOVING AVERAGE:
⬇︎23% (113 of the S&P 500 stocks ended last week above their 50D MA and 387 were below)
One week ago: 26%, one month ago: 63%, one year ago: 91%
% OF S&P 500 STOCKS TRADING ABOVE THEIR 200-DAY MOVING AVERAGE:
⬇︎55% (273 of the S&P 500 stocks ended last week above their 200D MA and 227 were below)
One week ago: 56%, one month ago: 74%, one year ago: 77%
Closely-watched measures of market breadth and participation, providing a real-time look at how many of the S&P 500 index stocks are trending higher or lower, as defined by whether the stock price is above or below their more sensitive 50-day (short term) and less sensitive 200-day (long term) moving averages which are among the most widely-followed of all stock market technical indicators.
The higher the reading, the better the deemed health of the overall market trend, with 50% considered to be a key pivot point. Readings above 90% or below 15% are extremely rare.
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