By Jack Kraft, CFA, Investment Strategist
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The S&P 500 rose 1.0%, while the Nasdaq surged 3.3%, marking a third consecutive week of gains for both indices. In contrast, the Dow slipped 0.6% over the week.
The path of least resistance remains upward, supported by a favorable macro backdrop of political clarity, robust economic growth and accommodative monetary policies from the U.S. Federal Reserve (Fed) and global central banks. Reflecting this optimism, the S&P 500 notched its 57th record-closing high of the year. Elsewhere, Bitcoin captured headlines after surpassing the $100,000 milestone for the first time.
Despite the record highs for stocks, sector performance was skewed last week. Only three sectors finished the week in positive territory: consumer discretionary, communication services and information technology. In the consumer discretionary space, retail stocks caught a bid on upbeat data from Black Friday, which showed that consumers spent a record $10.8 billion online, up 10% from the prior year. This trend seemed to continue all weekend with Adobe analytics now forecasting holiday spending in the United States of roughly $240 billion, up 8.4% from the prior year. On the flip side, energy stocks were the worst-performing sector on the week, falling more than 4% amid a decline in oil prices. The decline in prices comes despite OPEC postponing supply increases.
I think it is safe to say that we have gotten a Goldilocks-type scenario that everyone was wishing for at the start of the year: lower inflation, stable growth, all while the Fed enters a rate-cutting cycle—a combination that has proven highly favorable for equity markets. Not only did we get this ideal backdrop, but we also saw a broadening of market participation, helping push equity returns up by nearly 30% this year. Coupled with last year’s exceptional gain of 26.3%, it’s important for investors to remember that annualized returns above 20% are not typical for equity markets.
These sharp upward moves in the stock market can lead to feelings of “FOMO” (fear-of-missing-out). In fact, today’s market is starting to remind me of late 2021 and early 2022, when pockets of the stock market such as software and small-cap growth stocks approached bubble-like territory. Valuations of some stocks got so extended that a multiple of 40, 50 or even 60 times sales was not uncommon. Other speculative assets joined in as well, such as NFTs (nonfungible tokens) and “Meme Coins”, all while Bitcoin reached a high of $64,000 in 2021 before ultimately trading back down to below $20,000 in 2022.
I raise this caution to remind investors not to overextend in a momentum-driven market. With little multiple expansion likely remaining in U.S. large-cap equities, further gains will need to come from earnings growth on a company-by-company basis. That said, I do remain cautiously bullish on stocks going into 2025 given the macro backdrop cited above and think it’s important to not fight the Fed in a rate-cutting cycle. Stocks can continue to power higher with the median consensus forecast by analysts for 2025 calling for an S&P 500 target of 6,500, or about 7% above from current levels.
The Fed received timely labor market data last week. Nonfarm payrolls exceeded expectations, with the U.S. economy adding 227,000 jobs in November. However, the unemployment rate edged higher to 4.2%. Investors welcomed the report, viewing it as supportive of a potential rate cut at the Fed’s December meeting. According to the CME FedWatch Tool, there is an 87% probability of a 25-basis-point rate cut, which would lower the federal funds rate to a range of 4.25%-4.50%.
Looking further down the road, consensus estimates suggest quarterly rate cuts in 2025, totaling 100 basis points of additional easing. However, navigating this will be challenging as the Fed still needs to bring down the inflation rate closer to 2.0% and juggle a new administration in the White House. Ultimately, I see the path forward as much more difficult and wouldn’t be surprised if the Fed sees some hiccups along the way next year as it tries to find a new neutral rate.
Globally, this could be a December to remember for central banks. The Bank of Canada and the European Central Bank are also expected to lower interest rates at their upcoming meetings, while the Bank of England is projected to hold steady. Meanwhile, the Bank of Japan may buck the trend with a potential rate hike. In China, policymakers have pledged “more proactive” fiscal measures and moderately looser monetary policy for 2025 to stimulate domestic consumption. All this taken together, global growth and policy looks to be supportive of equity prices headed into 2025.
Looking ahead to this week, it should be a relatively busy week with some key economic and earnings reports. Headlining the economic calendar will be an updated print on the Consumer Price Index (CPI) on Wednesday. It is expected that Core CPI rose 0.3% last month and 3.3% from a year ago. Investors will get another key update Thursday with the producer price inflation report. Consensus is showing that both reports are expected to come in a little hotter than normal, so any surprises to the upside could spike some volatility in the markets this week. On the earnings front, artificial intelligence will be in focus with Broadcom, Adobe and Oracle issuing profit reports. Other notable companies include Costco, Macy’s, AutoZone and Casey’s General Store.
Economic Calendar December 9 – December 13
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, DEC. 9 | ||||
| 10:00 AM |
Wholesale inventories |
Oct. |
0.20% |
-0.20% |
| TUESDAY, DEC. 10 | ||||
| 6:00 AM |
NFIB optimism index |
Nov. |
94.3 |
93.7 |
| 8:30 AM |
U.S. productivity (revision) |
Q3 |
2.20% |
2.20% |
| WEDNESDAY, DEC. 11 | ||||
| 8:30 AM |
Consumer Price Index |
Nov. |
0.30% |
0.20% |
| 8:30 AM |
CPI year over year |
2.70% |
2.60% |
|
| 8:30 AM |
Core CPI |
Nov. |
0.30% |
0.30% |
| 8:30 AM |
Core CPI year over year |
3.20% |
3.30% |
|
| 2:00 PM |
Monthly U.S. federal budget |
-$353B |
-$314B |
|
| THURSDAY, DEC. 12 | ||||
| 8:30 AM |
Initial jobless claims |
Dec. 7 |
224,000 |
224,000 |
| 8:30 AM |
Producer Price Index |
Nov. |
0.20% |
0.20% |
| 8:30 AM |
Core PPI |
Nov. |
— |
0.30% |
| 8:30 AM |
PPI year over year |
— |
2.40% |
|
| 8:30 AM |
Core PPI year over year |
— |
3.50% |
|
| FRIDAY, DEC. 13 |
|
|||
| 8:30 AM |
Import price index |
Nov. |
-0.20% |
0.30% |
| 8:30 AM |
Import price index minus fuel |
Nov. |
— |
0.20% |