Weekly Market Update for December 20, 2024
by Jared Plotz, Director of Research
Volatility has picked up. The Chicago Board Options Exchange maintains an index that tracks stock market volatility, known as the “VIX.” The index remained low and range-bound largely for the entirety of the first half of 2024. It spiked notably in late July around the time that President Biden dropped out of the election race. It remained a bit higher in the second half of the year with a few spikes, the most recent being this week. Oftentimes, the market becomes more of a “stock-picker’s market” when volatility rises. It can be argued that as the correlation between equities declines (i.e. not all stocks going up in unison), the value of an investment manager’s research and discretion (“picks”) increases. We will see if this trend gathers steam in 2025.
During the week, the S&P 500 slumped -1.99%, while the Nasdaq fell -1.78%. On Monday the S&P 500 was +0.38%, Tuesday -0.39%, Wednesday -2.39%, Thursday -0.09%, and Friday +1.09%. Sectors that outperformed the broader move included Technology and Utilities, while laggards included Energy and Real Estate. The 10-Year Treasury, a rate indicator, closed the week at 4.53%, up +13 bps from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, ended down -3 bps at 4.29%. The rise in longer-term rates has pressured fixed income securities of late.
The week’s big news was the Federal Reserve meeting on Wednesday. The rate-setting committee lowered its benchmark rate by 25 basis points, as was widely expected. The more noteworthy development was the group’s updated economic projections, which they adjust on a quarterly basis. In 2025, real GDP is now anticipated to expand by 2.1%, a small improvement from 2.0% in September’s forecast. Inflation, as measured by the personal consumption expenditure index (PCE), is anticipated to rise by 2.5%, a notable uptick from 2.1% prior. And two rate cuts are now forecast for 2025, down from four cuts a quarter ago and the three cuts investors had penciled in. Despite the higher expected economic growth, the mix of higher inflation and fewer rate cuts contributed to the rise in the 10-Year Treasury and the pullback in stocks Wednesday/Thursday. The group will next meet during the last week of January.
Elsewhere in economics land, November retail sales were stronger than expected (+0.7% from October) while manufacturing readings were weaker. Housing starts and building permits were mixed. The final reading of GDP for the third quarter moved up to +3.1% (annualized rate), from 2.8%, suggesting the economy remains strong. Lastly, the third major inflation reading of the November month showed that PCE rose at a more tepid pace. That data point contributed to the market’s bounce back on Friday.
Wall Street activity will be slowed by the holiday next week. The markets, and our office, will close at noon central on Tuesday before trading resumes Thursday morning. Economic readings and regulatory decisions will also be rather quiet. We wish a safe, warm, and happy holiday to you and yours next week!
Before we go, we’d like to highlight the Minnesota Star Tribune’s feature on Jim Ulland that was published yesterday, and which we sent via email. If you missed it, the link to the feature on the Star Tribune website is HERE.
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