Weekly Market Report: December 27th, 2024
The holiday shortened final full week of 2024 featured a very light economic calendar and continued speculation as to the path forward for markets in 2025. Equity markets continued to digest monetary policy, trade policy, and the impact of prevailing interest rates. Global equity markets recovered slightly from the prior week’s consolidation with U.S. (+0.7%), developed international (+1.8%), and emerging markets (+1.0%) all posting marginal gains. Interest rates again drifted higher with 10yr yield closing at 4.62%, up nearly 100 bps since September 13th. Commodities posted marginal gains with oil up 1.6% to close back up over $70 and the USD building on its strong fourth quarter rally.
Market Anecdotes
- Equity markets have taken note of the move higher in interest rates against a backdrop of policy uncertainty, a marginally more hawkish FOMC, and a relatively healthy economy.
- Based on TLT fund flows, bond market investors seem to have shifted their opinion on Fed policy as it pertains to the long-run inflation objective with fund flows rotating from inflows to outflows beginning in early November.
- In contrast to fund flows, Wall Street forecasters overwhelmingly see bond yields falling in 2025 with only two of twelve banks predicting a further rise in interest rates.
- High interest rates certainly have a tightening effect on the economy and chilling effect on stocks, so does a strengthening USD. The recent rally of +7.7% since late September is similar to July ‘23-Oct ‘23 (+7.5%) but pales next to the persistent +27.4% move from June ‘21 – Sept ‘22.
- Fed funds futures markets are pricing in two 25 bps cuts over the next year, in line with Fed median dot plot at the time of their December meeting.
- The rise in interest rates and distinct possibility of persistently elevated rates for the foreseeable has our eyes on burgeoning credit risk in several direct lending products due to the prevalence of PIK interest structures, an aggressive feature found in many private credit funds.
- The increased prevalence of natural disasters and higher costs of materials have resulted in large home insurance premium increases, compounding the impact of higher mortgage rates on the U.S. housing market.
- With holiday shopping season now in the rearview, MasterCard SpendingPulse reported sales rose 3.8% YoY, more than forecasted and better than the same period last year.
Economic Release Highlights
- Consumer Confidence dipped in December to 104.7 off November’s 111.7 reading.
- New Home Sales in November cane in right at consensus 664k.
- Durable Goods Orders in November fell 1.1%, below the spot forecast of -0.2%. Ex-Transports missed (-0.1% vs 0.3%) while Core Capital Goods grew 0.7%, well above the 0.1% consensus.
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