The market enters the final two trading days of 2024, and stocks are set to post another strong year of gains.
Nasdaq Composite (^ IX) led the trend again in 2024, up more than 30% so far while the S&P 500 (^ GSBC) rose by more than 25%. Dow Jones Industrial Average (^ DJI) by a more modest 14%.
A shortened trading week with limited news on the docket is expected to welcome investors into the final trading week of the year. Markets will be closed on the occasion of New Year’s Day on Wednesday, and no major company is scheduled to announce its quarterly results.
In economic data, updates to home prices and sales, as well as a look at activity in the manufacturing sector, are expected to highlight a weak week of releases.
But stocks weren’t in the holiday spirit. All three major averages were sold off on Friday, with the Nasdaq down nearly 1.5%.
Since 1950, the S&P 500 has risen 1.3% during the seven trading days beginning Dec. 24, well above the typical seven-day average of 0.3%, according to Adam Turnquist, chief technical strategist at LPL Financial. History has shown that if Santa comes and the S&P 500 returns a positive return during this time period, January is usually a positive month for the benchmark index and the rest of the year averages a 10.4% return.
When the S&P 500 is negative during this time frame, January typically doesn’t end in the green, and the average return for the next full year is just 5%, according to Turnquist. Three days into this year’s Santa Claus period, which closes on Friday, January 3, the S&P 500 is down less than 0.1%.
While history may be flashing a warning sign, it’s worth noting that last year’s Santa Claus walk didn’t materialize. January It started badly also. However, the S&P 500 is still poised to end the year up more than 20%.
It also absorbed the markets Fed’s latest message Although interest rates may remain higher for longer than investors had hoped, bond yields have risen. 10-year Treasury bond yield (^ TNX) rose more than 40 basis points in December alone.
Hovering just above 4.6%, the 10-year term is at its highest level in about seven months and in the area where equity strategists believe higher interest rates may begin to impact stock performance.
“I think 4.5% or higher over 10 years is going to be a problem for broader markets,” Michael Kantrowitz, chief investment strategist at Piper Sandler, said in a recent video sent to clients.
“In the last couple of years, markets have actually fallen due to higher interest rates or inflation fears,” Kantrowitz said on December 18. “I think this is the new normal going forward. Market corrections will come from higher rates, not slower growth or higher rates.” Unemployment.”
Despite the recent pullback in markets since the Fed’s Dec. 18 meeting, the setup heading into 2025 “hasn’t really changed,” Scott Krohnert, US-based equity strategist at Citi, wrote in a note to clients on Friday.
Stock valuations remain high. Earnings are expected to grow about 15% year over year for the S&P 500, according to FactSet data, creating a “high bar” to convince investors. American economic growth It is largely expected to remain resilient.
“Overall, investors appear bullish on U.S. stocks,” Krohnert wrote.
This has led to market sentiment, as measured by the Citi Lefkovich Index, becoming increasingly high. The Lefkovich Index, which takes into account investors’ short positions and leverage, among other factors, to determine market sentiment, currently sits at a reading of 0.62, above the euphoria line of 0.38, where the likelihood of positive forward returns is typically lower and the market appears extended.
At the moment, this does not affect Chronert’s overall confidence in the US stock market. He noted that the “fundamentals” that led to the market’s rise remain sound.
But strategists argue that stretched sentiment and valuations put the market’s rally on thinner ice should a catalyst emerge that challenges the 2025 bull thesis.
“Overall, this setup, combined with the lack of a real correction for some time, leaves the market more vulnerable to increased bouts of volatility,” Krohnert wrote. “If the fundamental story holds, we will buy first-half declines in the S&P 500.”
People photograph the New York Stock Exchange in New York’s Financial District on December 23, 2024. (AP Photo/Peter Morgan, File) ·Associated Press
Weekly calendar
Monday
Economic data: MNI Chicago PMI, December (42.8 expected, previous 40.2); Pending Home Sales MoM, November (0.9% expected, 2% previously); Dallas Fed Manufacturing Activity, December (previously -1.5, previous -2.7)
Earnings: No noticeable profits.
Tuesday
Economic data: S&P CoreLogic 20-City Index YoY, October (+4.11% expected, +4.57% previous); Federal Services Activity in Dallas, December (formerly 9.8)
Earnings: No noticeable profits.
Wednesday
Markets are closed on New Year’s Eve.
Thursday
Economic data: MBA Mortgage Claims, Week Ended December 20 and Week Ended December 27, Initial Jobless Claims, Week Ended December 28 (expected 219,000); S&P Global US Manufacturing PMI, final December (expected 48.3, previous 48.3); Construction Spending MoM, November (+0.3% expected, +0.4% previously)
Earnings: No noticeable profits.
Friday
Economic calendar: ISM Manufacturing Index, December (previously 48.3, previous 48.4); ISM Paid Rates, December (previously 50.3)
Earnings: No noticeable profits.
Josh Schaeffer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
