Week in Review: December 30, 2024

December 30, 2024

Recap & Commentary

Markets ended the holiday-shortened week modestly higher giving hope to investors that 2024 will end with a Santa Claus rally. The phenomenon, first described in 1972 by Yale Hirsch, founder of the Stock Trader’s Almanac, is the tendency for equity markets to produce positive returns over the last five trading days of December and the first two trading days of January. Since 1950, the S&P 500 has had a positive return over those seven days in 58 out of 74 years, or 78% of the time, with an average gain of 1.3%.​

Looking ahead to 2025, investors are generally excited by the prospect of lower taxes and less regulation in Trump’s second term, a backdrop that would likely be good for both stocks and the broader economy. However, there are potentially countervailing forces that investors should heed. Stronger economic growth would likely place upward pressure on inflation which in turn could influence the timing and amount of additional Fed rate cuts. In addition, Trump has proposed policies to raise tariffs and deport millions of illegal immigrants, both of which could place additional upward pressure on inflation.​

Regardless of if/how Trump’s policies are enacted, inflation has made little additional progress towards the Fed’ longer-term 2% target in recent months, contributing to the Fed reducing its 2025 forecast for additional rate cuts from four to two at its December meeting​

Investors will also need to consider elevated equity market multiples stemming from 2024’s strong returns. At current levels, multiples could be susceptible to upward movements in longer-term interest rates, which themselves will be influenced by how inflation unfolds.​

There are good reasons for investors to be optimistic entering 2025, but they will need to be attuned to how economic growth, inflation, interest rates, and fiscal and monetary policy unfold over the course of the year.

Economic Commentary

A relatively light week for economic data was highlighted by consumer confidence which unexpectedly fell to its lowest level since September. The disappointing reading was driven by a large decline in consumers’ short-term economic outlook. As has been the case for a while, the predictive power of consumer confidence measures seem to be limited, as evidenced by average consumer spending growth of 2.7% over the past eight quarters while consumer confidence averaged 104, compared to average consumer spending growth of 2.5% for the eight quarters prior to the pandemic, even as consumer confidence averaged 129 during that period. ​

New home sales rose 5.9% in November, partially rebounding from October’s hurricane-induced 14.8% decline. Compared to a year ago, new home sales increased 2.4%. Inventory of new single-family homes rose to 8.9 months of supply based on the current pace of sales. Six months of inventory is considered typical for a balanced market.​

Durable goods orders fell 1.1% in November after rising 0.8% in October. However, a core measures of business demand, excluding volatile aircraft orders, rose 0.7% pointing to healthy demand.​

Of Note

From all of us at First Western, we wish you a happy, health, and prosperous 2025. Happy New Year! ​

Market Indices   (As of 12/27/2024)

• ISM Manufacturing​
• ISM Services​
• Pending Home Sales​
• Initial Jobless Claims