Week in Review: December 13, 2024

December 16, 2024

Recap & Commentary

Markets ended the week lower as investors digested November inflation data which showed further signs of stalling. Despite the declines, the tech-heavy NASDAQ briefly surpassed 20,000 mid-week for the first time. While there is nothing special about the price level itself, investors and the media often like to celebrate when closely watched indices such as the S&P 500, Dow Jones Industrial Average, and NASDQ reach new round number thresholds.

Limited economic data and a relative dearth of other substantive news left markets seeking and finding limited direction. The inflation data did, however, have the effect of helping push yields back up to their highest level in three weeks as investors weighed the implications of the data on future Fed rate cuts. Currently markets are pricing in a 97% chance of a rate cut at this week’s Fed meeting, but the recent stalling in inflation could leave the Fed in a tricky spot heading into 2025.

If inflation remains stalled, or begins to reaccelerate and employment shows continued resilience, the Fed might have to slow the pace of further rate cuts.  However, if disinflation resumes and employment data shows further signs of cooling as it did during the summer, that would provide the leeway for the Fed to continue cutting rates. If, however, inflation continues to improve and employment strengthens, or inflation reaccelerates and employment weakens, that would put the Fed in a tricky spot, increasing uncertainty around future rate cuts and likely increasing volatility around longer-term interest rates.

Economic Commentary

Inflation data dominated the week with the release of both consumer (CPI) and producer (PPI) data. Both measures, particularly at the headline level showed unwanted reacceleration.

Headline consumer inflation rose 0.3% in November, in line with expectations, but faster than the 0.2% monthly pace recorded in October. Compared to a year ago, headline inflation rose 2.7%, up from October’s 2.6% pace to its fastest rate since July. Core CPI, excluding food and energy prices, rose 3.3% from a year ago, for the third consecutive month, lending further credence to the idea that the improvements in inflation seen during the summer largely stalled during the fall. Shelter prices, which account for ~1/3 of CPI, have also been one of the largest contributors to continued upwards pressure on inflation. Given that, one positive development within the November data was shelter prices registering their smallest annual increase since February 2022. Should the deceleration, which Fed officials have been anticipating for over a year based on more real-time measures of rents, continue that could lead to further improvement in inflation in the months ahead.

Initial jobless claims jumped 17K to 242K, their highest level in two months. Though the data series is inherently volatile, currently any number above 240K tends to get the attention of economists. Additional reports above this level could cause concerns about broader economic strength, especially to the extent that it causes consumers to become more cautious in their spending.

Of Note

The European Central Bank cut rates by 0.25% at its meeting on Thursday, marking the fourth overall cut this year. Multiple ECB members suggested after the meeting that the bank will pursue additional cuts in 2025.

Market Indices   (As of 12/13/2024)

• Core PCE Inflation
• Manufacturing & Services PMI
• Retail Sales
• Industrial Production
• Housing Starts
• Existing Home Sales
• Personal Income & Spending
• Consumer Sentiment