Everything to Know about Macro and Markets
Despite the widespread sell-off on Friday, stocks managed to close the last full trading week of 2024 with gains. The S&P 500 (SPX) rose by 0.67% and the Dow Jones Industrial Average (DJIA) increased by 0.35%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) gained 0.76% and 0.86%, respectively.
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Yields Stole Christmas
After a strong start to the week, investors returned from the Christmas break in an anxious mood, with markets finishing nearly flat on Thursday and tumbling on Friday. The week’s last session saw all S&P 500 sectors in the red, despite thin trading, following a jump in 10-year Treasury yields to their highest in six months amid inflation worries and expectations of slower Fed easing than was previously priced in.
Large-cap technology stocks led the market down. Although most of the “Magnificent” cohort saw their stocks drop at rates comparable to the rest of the market, their outsized weight in the index significantly impacted the market performance. Notably, the importance of the “Magnificent” bunch works both ways, as they were responsible for over half of the S&P 500’s gain in 2024 – meaning that an average index member gained this year half of the benchmark’s headline return.
No Santa, No Problem?
Although the “Santa Rally” apparently failed to arrive, investors who followed at least some momentum trades this year still have much to celebrate. The strategy of riding the obvious trends, such as betting on Nvidia (NVDA), Meta Platforms ($Meta), and Amazon (AMZN), or piling into such “Trump Trades” as Tesla (TSLA) or Bitcoin-related stocks, worked out remarkably well.
Obviously, the larger the gains, the higher the risk of a sell-off, as investors become anxious about overextended valuations and concentration of the gains. However, investors may have found some comfort in the fact that recent declines in the Technology and Consumer Discretionary sectors have driven the percentage of stocks trading above their 200-day moving average down to levels comparable with the S&P 500. Meanwhile, Communications Services, with almost three-quarters of its members trending above that average, may be prone to further strong correction.
Large Banks Shine
Friday’s losses were led by this year’s biggest gainers – Communications Services, Technology, Consumer Discretionary, and Financial sectors. While the first three have been leading the rally since late 2022 or early 2023, Financials arrived at the party during the second part of this year, as they were supported by outsized institutional investor inflows.
Indeed, starting a few months ago, hedge and mutual funds began piling into the Financial sector, specifically large banks, as expectations for deregulation and lower taxes under the incoming Trump administration started to grow. This development supported the rally that was ignited by economic resilience and the Fed’s easing cycle. As a result, the S&P 500’s Financials rose by almost 30% year-to-date, outperforming the broad benchmark’s 25% gain. Moreover, the sector is seen as the clear winner in terms of the rally’s breadth, with 89% of stocks above their 200-day moving average, compared to 56% for the total S&P 500 stock universe.
Still, the picture seen in other sector rallies – such as Technology and Communications Services – where large-cap stocks lead the way, is similar for Financials, even if it is less pronounced. Thus, the KBW Bank index, which represents national money center banks and leading regional institutions, is up by almost 34% year-to-date.
Stocks That Made the News
▣ Mega-cap technology stocks weighed on market performance on Friday, led down by Tesla’s (TSLA) 5% drop. Investors, worried that the EV maker’s shares have outrun their fundamentals, sold TSLA prior to the release of its quarterly production and delivery figures next week.
▣ Despite Friday’s sell-off, most of the “Magnificent Eight” – the regular bunch plus Broadcom (AVGO) – finished the week in the green, with only Microsoft (MSFT) registering a slight decline. Apple (AAPL) lost ground just as it was on the verge of becoming the world’s first-ever $4 trillion company, having surged to an all-time high on Thursday following an analyst upgrade. Meanwhile, Broadcom’s investors celebrated another strong week, as the company’s stock rose by over 6.5% even after accounting for Friday’s drop.
▣ Friday’s bout of anxiety brought down shares that were on a strong run previously, such as Palantir Technologies (PLTR), which joined the Nasdaq-100 index last week after rallying by over 360% year-to-date. Other victims of the sudden sentiment deterioration were the stocks that are perceived as the riskiest, such as Super Micro Computer (SMCI), which has had a very volatile run since March.
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 Micron (MU), Stryker (SYK), Deere (DE), Mondelez International (MDLZ), Monolithic Power (MPWR), Realty Income (O), Quanta Services (PWR), Cisco Systems (CSCO), American Express (AXP), and other dividend-paying firms.
For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.
