Everything to Know about Macro and Markets
Despite Friday’s rally, stocks finished the week with heavy losses. The S&P 500 (SPX) declined by 1.99% and the Dow Jones Industrial Average (DJIA) tumbled by 2.25%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) dropped by 1.78% and 2.25%, respectively.
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Economy and the Fed Play Ball with the Markets
Most of the weekly losses were due to the market’s dramatic reaction to the news from the Federal Reserve’s meeting on Wednesday. The central bank’s decision to reduce rates by 0.25% was widely expected and priced in. However, the Fed’s “Dot Plot” revealed that policymakers expect only two interest-rate cuts next year – versus the four they had penciled in at their September’s meeting.
Although the “higher for longer” theme’s return was apparent over the past few months, this revelation roiled the markets, sending the S&P 500 to its worst day in four months. Investors were already jittery due to the prospects of a government shutdown as lawmakers scrambled for a temporary funding measure (they reached a deal on Friday after hours). To add fuel to the fire, Fed Chair Jerome Powell said that the rate committee members now anticipate higher core inflation in 2025 than was previously forecast, and that the central bank is “going to be cautious about further cuts.”
Resilient Economy Expected to Support Earnings
Things began to look brighter on Thursday, as a final reading for Q3 2024 GDP growth showed that the economy expanded faster than previously estimated, largely fueled by robust consumer spending. Although faster-than-expected growth plays into the now-expected Fed cautiousness, it also alleviates worries over a hit to corporate earnings from a weakening economy. Although stocks closed mostly lower, the Dow managed to eke out a small gain, breaking its 10-day losing streak, the worst since the 1970s.
Friday’s Core PCE report injected a healthy dose of optimism into markets. The Fed’s preferred inflation measure showed that prices rose at a slower-than-expected clip in November. After the Fed reset market expectations regarding the speed and depth of the monetary easing next year, it has more room to surprise markets with additional cuts , supporting the rally if inflation continues to decelerate.
Waiting for Santa
For investors, next week not only brings the wonderful spirit of Christmas and Hanukkah, but also marks the start of the traditional Santa Claus Rally, which statistically arrives during the final trading days of December and early days of January. Although following the erratic week in the markets many are wondering whether Santa will indeed bring the holiday cheer this year, there are reasons for optimism.
For starters, the sharp positive pivot in the market mood on Friday signifies the resilience of the bulls. In addition, U.S. equity funds drew in $82.2 billion in inflows in the week through Wednesday, confirming that investors remain optimistic about domestic stocks. While stock funds saw massive inflows, other asset classes – such as money market and bond funds – experienced significant outflows, indicating a risk-on investor sentiment.
Stocks That Made the News
▣ Micron (MU) sunk by over 14% on the week despite a beat on EPS, as revenue and profit guidance fell short of Wall Street’s expectations.
▣ Palantir (PLTR), now part of the Nasdaq-100 index, continued its strong upward climb, rising almost 6% on the week after announcing that it has extended its long-standing partnership with the U.S. Army.
▣ Darden Restaurants (DRI) surged by over 11% following strong quarterly results and upbeat annual guidance.
▣ Jabil (JBL) saw its stock jump by over 8% as EPS and revenue beat led several Wall Street analysts to raise their price targets.
▣ Novo Nordisk (NVO) cratered by almost 22%, its biggest loss in over 20 years, after the announced results from an experimental obesity shot were not as strong as the company’s projections.
Upcoming Earnings and Dividend Announcements
The Q3 2024 earnings season is over, and there are no newsworthy earnings releases scheduled for this week.
Ex-dividend dates are coming this week for Broadcom (AVGO), Johnson Controls (JCI), Altria Group (MO), Southwest Airlines (LUV), Philip Morris (PM), GE Aerospace (GE), Medtronic (MDT), Royal Caribbean (RCL), and other dividend-paying firms.
For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.
