Market Update—Week of December 23, 2024

Market Update—Week of December 23, 2024
Presented by Zachary R. Sturdy

Retail sales growth exceeded economist estimates in November. Stocks and bonds sold off as the Federal Reserve (Fed) issued guidance for higher-than-expected rates in 2025 and beyond. Data will be light this week because of the holidays; we expect reports on consumer confidence and durable goods.
Quick Hits

1. Report releases: Retail sales growth beat economist estimates in November.

2. Financial market data: Stocks and bonds sold off as the Fed issued guidance for higher-than-expected rates in 2025 and beyond.

3. Looking ahead: Data will be light this week because of the holidays; we expect reports on consumer confidence and durable goods.

Keep reading for an in-depth look.

Report Releases—December 16–20, 2024

Retail Sales: November (Tuesday)
Retail sales exceeded analyst estimates in November, marking three consecutive months with strong sales growth.

· Expected/prior month retail sales monthly change: +0.6%/+0.5%

· Actual retail sales monthly change: +0.7%

Federal Open Market Committee (FOMC) Rate Decision: December (Wednesday)
In a move that was largely expected by economists and investors, the Fed lowered the range of the federal funds rate 25 basis points (bps) after its December meeting.

· Expected/prior federal funds rate upper limit: 4.50%/4.75%

· Actual federal funds rate upper limit: 4.50%

Existing Home Sales: November (Thursday)
The pace of existing home sales rose for the second consecutive month. Although sales growth was solid, the overall pace of sales remained relatively muted on a historical basis.

· Expected/prior month existing home sales change: +3.2%/+3.4%

· Actual existing home sales change: +4.8%

Personal Income and Spending: November (Friday)
Personal income and spending growth came in slightly below economist estimates; nonetheless, this was a solid month for income and spending growth.

· Expected/prior personal income monthly change: +0.4%/+0.6%

· Actual personal income change: +0.3%

· Expected/prior personal spending monthly change: +0.5%/+0.4%

· Actual personal spending change: +0.4%

The Takeaway

· Retail sales beat expectations but personal income and spending missed estimates in November.

· As expected, the Fed cut rates 0.25 percent, bringing its policy range to 4.25 percent–4.5 percent. The central bank also updated its projections for future cuts.

Financial Market Data

Global markets took a risk-off stance, with stocks and bonds moving lower after the FOMC meeting on Wednesday. Although the rate cut of 0.25 percent was unsurprising, the Fed’s projections for two rate cuts next year and a higher long-term trajectory for rates seemed to catch markets off guard. As a result, riskier areas, such as small-caps and emerging markets, were caught on their heels as variable rate debt and currency softness continued to weigh on each, respectively.

The yield curve saw continued steepening. The Fed’s higher long-term rate projections pushed Treasury yields from the 2-year and beyond higher. The 2-, 10-, and 30-year yields were up 7 bps, 12 bps, and 11 bps, respectively, closing the week at 4.31 percent, 4.52 percent, and 4.72 percent, respectively.

The Takeaway

· The market took a risk-off sentiment as the Fed forecast that rates would remain higher for longer.

· Yield curve steepening continued after the central bank indicated it would keep rates elevated in 2025.

Looking Ahead

With the Christmas holiday on Wednesday, data will be light this week. We expect reports on consumer confidence, durable goods, new home sales, and the U.S. trade balance.

· The week kicks off Monday with the Conference Board Consumer Confidence Index for November. Confidence is expected to increase slightly, from 111.7 to 113.

· On Tuesday, we expect reports on preliminary durable goods orders and new home sales for November. Headline durable goods orders are set to fall after rising in October, whereas core orders are expected to show continued growth. New home sales are expected to rise to 675,000, up from 610,000.

· Finally, on Friday, the advanced release of the U.S. trade balance for November is expected. The trade deficit is set to expand to –$98.3 billion, far wider than the –$73.8 billion in October.

Disclosures: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent. One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

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Zachary R. Sturdy is located at 307 S. Front St., Ste: 107 Marquette MI, 49855 and can be reached at (906)226-6056.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network®.

Authored by the Investment Research team at Commonwealth Financial Network®.