January 18, 2025, Weekly Stock Market Return Recap, by Kip Lytel CFA, Montecito Capital Management. The S&P 500 and Dow Industrials recorded their largest weekly percentage increases since early November, while the Nasdaq noted its best performance since early December. For the week, the Dow Jones increased by 3.69%, the S&P 500 advanced by 2.92%, and the Nasdaq rose by 2.43%. Importantly, the U.S. stock market broadened its rally this week, with every sector of the S&P 500 achieving weekly gains, resulting in the equal-weighted S&P 500 outperforming the market capitalization-weighted version. The stock market saw a recovery in the latter part of the week, driven by reports of cooling inflation, which suggests progress towards the Federal Reserve's 2% inflation target. The Consumer Price Index (CPI) increased by only 0.2% month-on-month on a core basis, which excludes the more volatile food and energy prices, marking a decrease from November's 0.3% rise. December marked the first instance since July where this metric indicated a slowdown in price growth. Additionally, the Producer Price Index (PPI) revealed that wholesale inflation rose less than anticipated in December, a favorable development for the economy amidst recent concerns that inflation was not declining as swiftly as desired in relation to the Federal Reserve's 2% target. The Bureau of Labor Statistics reported that the PPI, which monitors price changes experienced by companies, increased by 3.3% year-over-year, up from 3% in November but below the 3.5% rise that economists had forecasted. On a monthly basis, prices rose by 0.2%, falling short of the 0.4% increase that economists had predicted.
January 10, 2025, Weekly Stock Market Return Recap, by Kip Lytel CFA, Montecito Capital Management. The robust depiction of the U.S. labor market detailed in Friday's report has led investors to reassess their expectations regarding the timing of interest rate cuts by the Federal Reserve, resulting in a souring of investor sentiment. The S&P 500 Index has decreased by 115 points, or 1.9%, this week, marking its most significant percentage drop since the week ending December 20, 2024. Currently, the S&P 500 is down 4.3% from its record closing value of 6090.27 reached on December 6, 2024. The Nasdaq Composite has experienced a 2.3% decline for the week, while the Dow Jones Industrial Average has fallen by 1.9%. The U.S. labor market concluded 2024 in such strength that the need for near-term Fed cuts is in doubt; 256,000 jobs were added in December, with the unemployment rate decreasing to 4.1%. According to data released by the Bureau of Labor Statistics on Friday, the number of new jobs significantly exceeded the economists' forecast of 165,000 and surpassed the 212,000 jobs added in November. Additionally, the Institute for Supply Management's manufacturing PMI indicated continued expansion in the manufacturing sector last month, although the prices paid index surged to a nearly two-year high of 64.4, up from the previous 58.2. This increase in prices raises concerns for the Federal Reserve, as it aligns with the PCE supercore inflation remaining at 3.5% until mid-next year. These recent economic trends serve as a reminder that the Federal Reserve's battle against inflation is far from over, especially as tariffs and immigration restrictions are anticipated to exacerbate price pressures in the coming year. The yield on the 10-year Treasury, which is closely linked to rate expectations, stood at 4.76% late Friday, an increase from 4.68% the previous day, reaching its highest levels since November 2023.
January 3, 2025, Weekly Stock Market Return Recap, by Kip Lytel CFA, Montecito Capital Management. The S&P 500 and Nasdaq have ended a five-day period of losses, although both the S&P 500 and Dow closed the holiday-shortened week with declines of over 1%, while the Nasdaq saw a weekly drop of 2%. Such circumstances often lead investors to adopt a more cautious stance after experiencing a challenging four weeks of market losses. On the economic front, the Institute for Supply Management (ISM) announced that the Manufacturing Purchasing Managers' Index (PMI) increased to 49.3 in December, which is higher than the expected 48.4.
2024 YEAR-END STOCK MARKET RECAP: Last year’s stock market benefited from a confluence of factors that include the rise of artificial intelligence (AI), better-than-anticipated corporate earnings, healthier economy, waning inflation, stock-split euphoria, three Federal Reserve rate cuts and views that President-elect will implement pro-business and low-tax policies. Further, the S&P 500's year-to-date earnings are expected to be 8.6%, or 11.3% excluding energy – not a bad finish for what was heralded to be a soft recessionary landing.
The S&P 500 recorded a 23% gain in 2024, which closely paralleled the market's 24% increase from the prior year. This marked the first instance of the index achieving a growth of at least 20% in consecutive years since the internet boom of 1997-1999.
Much like in 2023, the primary contributors to the S&P 500's growth were high-growth technology stocks, including Nvidia, Tesla, Broadcom, Netflix, and Meta, all of which delivered gains exceeding 65% for the year. Nevertheless, the reasons behind the exceptional performance of this limited group of stocks in 2024 were distinct from those observed in 2023. In 2023, the prevailing sentiment was that stocks with rapid earnings growth were best positioned to withstand the pressures of high interest rates, whereas in 2024, the emphasis shifted to companies utilizing Artificial Intelligence (AI). It is noteworthy that these stocks have retained their euphoria, resulting in the Magnificent Seven stocks being overvalued and representing 57% of the S&P 500 gains in 2024. Accordingly, we would expect more sector rotation in 2025, where the drivers of next year’s returns are likely to fall on the shoulders of several other sectors.