Week in Review: January 3, 2025

January 6, 2025

Recap & Commentary

Santa Claus failed to appear for the markets as the S&P 500 ended the holiday shortened week lower, resulting in a total return for the last five trading days of December and first two trading days in January of -0.5%. That also capped a disappointing end to the year for the S&P 500 which fell 2.5% in December.  Nonetheless, the index returned 23.3% in 2024, marking its second consecutive year with a 20%+ gain. In addition, the S&P 500 notched 57 new record highs over the course of 2024. With Christmas and New Year’s arriving in the middle of the week, it resulted in relatively light trading volumes leaving markets susceptible to outsized moves.

Bond market investors were no doubt happy to turn the page on 2024 following a disappointing year. Though the Bloomberg US Aggregate Bond Index, the broadest measure of the US bond market, eked out a modest 1.3% gain for the year, investors had been expecting more. With the Fed widely anticipated to begin cutting rates in 2024, investors envisioned a scenario in which falling rates would propel bond prices higher. Though the Fed ultimately enacted four rate cuts between September and December, reducing short-term rates by a commensurate amount, longer-term rates somewhat counterintuitively rose.  Since the Fed first cut rates in September, longer-term rates, as measured by the 10-Year Treasury yield, have risen nearly 0.9%. The increase in longer-term rates has also impacted mortgage rates, which ended the year at 6.97% their highest level since July and 0.21% higher than a year ago, before the Fed began cutting interest rates.

Economic Commentary

A relatively quite week for economic news was highlighted by manufacturing data from Institute for Supply Management (ISM) which saw the sector contract for the ninth consecutive month in December, but encouragingly, did so at the slowest pace in nine months. Employment, also contracted again in December, for a seventh consecutive month. More encouragingly, new orders increased for the second consecutive month following seven months of declines, reaching their highest level in a year. Stronger order growth suggests improving demand which, if sustained, could lead to higher employment.

Pending home sales rose for a fourth consecutive month in November, up 2.2%, more than doubling expectations. Compared to a year ago, pending home sales increased 6.9%. According to the National Association of Realtors, the recent improvement suggests that potential buyers are not waiting for meaningful improvement in 30-year mortgage rates which have remained above 6% for the past 24 months. Instead, they might be trying to taking advantage of recent improvements in inventory.

Initial jobless claims fell 9K to 211K, their lowest level in eight months. Despite the volatility in the series, the data suggests the labor market remains healthy. This week’s December employment report will provide further insight into the strength of the labor market, which in turn will help shape expectations regarding the timing and amount of additional Fed rate cuts in 2025.

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Of Note

The US Dollar rose 7.1%, in 2024, reaching its highest level in two years A stronger dollar makes imports cheaper and gives Americans greater spending power abroad, but at the same time can also make US exports less competitive.

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Market Indices   (As of 01/03/2025)

• Dec. Employment Report
• JOLTS Job Openings
• ISM Services
• Consumer Sentiment
• Initial Jobless Claims