Weekly Newsletter December 30th to January 3rd
RECAPPING LAST WEEK
U.S. equity indices ended 2024 on a down note but registered strong annual returns—well above the historical averages—for a second straight year. Once again, the Nasdaq Composite index led the way, soaring more than 28% for the year, while the S&P500 gained a robust 23%. The Russell 2000 was up more than 21% at its late-November peak before fading into year end, finishing higher by only 10%. International equities did not fare as well, with emerging and developed markets rising just 5% and 1%, respectively. S&P500 sector yearly performance was led by communications (+33%), financials (+28%), consumer discretionary (+25%), and technology (+20%). Real estate, health care, basic materials, and energy lagged. Cryptocurrencies saw tremendous growth in 2024 as Bitcoin skyrocketed from $42k to more than $108k at its high, ending the year with gains of 122%. Gold was one of the best performing commodities, jumping 27%, while oil prices saw plenty of volatility but ended the year nearly unchanged at $71.78 per barrel. U.S. Treasury yields generally were flat to down at the short end, but higher at the long end. The yield curve exited inversion in the final quarter of last year for the first time in more than two years. The last economic data points of 2024 revealed that the U.S. economy was on solid footing heading into the new year. Retail spending rose 3.8% for the holiday period, higher than estimates of 3.2% and the prior year’s growth of 3.1%. Unemployment claims fell to an eight-month low of 211k in the year’s final week. U.S. manufacturing moved close to expansion in December as the ISM PMI reading increased to 49.3, although the prices paid index also rose to 52.5 from 50.3, reflecting higher materials costs for factories. New and pending home sales rebounded in November, with new home prices falling 6.3% to $402,600 from a year earlier. However, 2024 was one of the slowest years in decades for existing home sales, as high prices and mortgage rates kept many buyers and sellers sidelined. The standard 30-year fixed-rate mortgage ended the year just shy of 7%, with little relief in sight. U.S. consumer confidence unexpectedly fell in December as Americans expressed concerns over politics and tariffs. Overseas, the World Bank raised its growth forecasts for China’s economy but warned that the real estate downturn will continue to produce headwinds. Factory activity in China missed expectations in December, with the official PMI falling to 50.1, barely remaining in growth territory. Services and construction PMI was stronger, rising to 52.2 from 50.0. In Japan, inflation edged higher as the BOJ core CPI index lifted to +1.7% YoY from +1.5%, while the reading in Tokyo accelerated to +2.4% YoY from +2.2%. The nine-member board of the Bank of Japan released the Summary of Opinions from its December meeting, which revealed the group is divided on the question of raising rates in the future. Last of all, U.S. equity indices posted modest gains for the first two trading days of 2025, while Treasury rates were little changed. Oil prices ended last week on a five-day winning streak, and the energy and utility sectors each rose 2%.
THE WEEK AHEAD
On Thursday, U.S. equity markets will be closed, and the bond market will close early inobservance of a national day of mourning for former President Carter. This week’s economic calendar is crowded with important data for what would normally be the first full trading week of 2025. In the U.S., the focus will be on the monthly employment data and minutes from the last FOMC meeting. The JOLTS job openings, ADP private payrolls, and Challenger job cuts reports will precede Friday’s non-farm payrolls, which are expected to show growth of around 150k in December, down from 227k the prior month. Although an in-line reading would represent over two million jobs created last year, it would be the lowest total since 2019—outside of the COVID-driven decline in 2020. The Fed has already set expectations for fewer rate cuts this year, but investors will parse the meeting minutes release on Wednesday for any additional insights. The rest of the U.S. agenda includes Treasury auctions, ISM services PMI, factory orders, consumer credit figures, and the consumer sentiment reading for early January. Overseas, inflation updates from Europe, China, and Australia are the main items of interest. European investors are anticipating a full percentage point of interest rate cuts in the first half of this year to aid a struggling economy, so any upside inflation surprises would be most unwelcome.
CHART OF THE WEEK
Oil bucks the trend
Despite the surging U.S. dollar, oil prices kicked off a new trend for 2025 by rising more than 5% last week. The S&P GSCI Crude Oil index ($SPGSCL), which tracks crude oil futures, reveals three distinct phases over 2024. First, although the trend was down coming into last year, prices quickly found support and gained 25% into April. Next, a reversal erased the entire gain plus an additional 10%, falling to multi-year technical support in early September. Then the Fed started cutting rates, which helped fortify that support level and stabilized oil prices for the rest of the year. After all that volatility, oil closed out 2024 within pennies of where it started and is sitting in a surprisingly similar position now, looking for potential bullish signals. Last week’s rally brought prices to three-month highs and broke above down-sloping resistance. The 20-day exponential moving average (EMA) crossed above the 50-day EMA, the MACD crossed above the zero line and confirmed the new high in price, and the RSI pushed very close to overbought territory—all of these are bullish signs. There have been several factors playing into the short-term rise: U.S. stockpiles dropped, cold snaps in Europe and the U.S. are feeding demand, and China hinted at additional stimulus. Meanwhile, Biden and Trump both chimed in with statements on drilling bans and tariffs on Canadian oil. For now, it seems as though the path of least resistance is higher. The next confirmation of that trend would be the index closing above both the 200-day EMA and longer-term resistance near $420. Near-term support lies around $360, which is approximately $65 per barrel for crude oil futures.
Source: Charles Schwab Corporation
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