Tucker Financial Weekly Market Review: January 3rd, 2025

Weekly Market Report: January 3rd, 2025

Last week bid adieu to 2024 and ushered in 2025 with New Years Day landing right in the middle of the week. The Santa Claus rally failed to materialize with the S&P 500, developed international, and emerging markets all closing down approximately 0.5% due in part to some underperformance across technology and consumer discretionary names. There were no impactful market events last week and trading volume was very thin as expected. Interest rates moved slightly lower on the week with the 10yr yields closing at 4.60%, maintaining the positively sloped yield curve for both 2y/10y and 3mo/10y spreads. Commodities benefited from a 4.8% rise in WTI crude oil, up nearly $4 to close at $73.96 and the USD continued to strengthen, closing up 0.88% for the week.

Market Anecdotes

• While a less aggressive Fed easing cycle may be contributing to cooling stock market momentum, we would highlight the three headed monster of interest rates, crude oil, and a strong USD as an equal, if not greater force.
• With interest rates possibly remaining elevated relative to the past 10 years, a look at long-term growth and value stock performance in higher interest rate environments suggests growth stocks outperform in lowrate environments while value stocks win in higher rate environments.
• Fed Funds futures markets are pricing the Fed on hold until May with a probability weighted 50bps by year end but carrying a relatively wide dispersion with left tail pricing down to 300-325 and right tail pricing of 450-475.
• The corporate earnings environment is expected to remain supportive with analysts seeing S&P 500 earnings growth improving from 9.4% in 2024 to 14.8% in 2025.
• Of note for 2025 is that earnings improvements for “the 493” are expected to improve from 4% in 2024 to 13% in 2025 while the “Magnificent 7” are expected to moderate from 33.5% in 2024 to 21.3% in 2025.
• Bespoke added a notable weak breadth observation that December 2024 saw the fewest positive breadth days (#adv/#decl) of any month since 1990 when they began compiling data.
• Bespoke noted that none of the “Mag 7” stocks made the list (Russell 3000) of the best performing stocks of 2024 which range from +350% to +2,684%. They also did not make the list of the worst performing stocks of 2024 which ranged from -85% to -99%.
• Some market consolidation on the back of extreme positive sentiment and a +25% year may be a welcomed and somewhat expected occurrence with investor sentiment cooling from late summer (and post-election) highs back into more healthy (skeptical) territory.
• A long-term look back at U.S. tariff rates shows the misguided protectionist policies of the early 1930’s, a slight resurgence in the 1960’s, and a steady to declining trend for decades leading up to 2018 with an uncertain path going forward.

Economic Release Highlights

• The ISM Manufacturing Index registered 49.3 in December, above both the spot forecast of 48.5 and the consensus range of 47.5 to 48.6. The final PMI Manufacturing Index was revised higher from 48.3 to 49.4.
• The J.P. Morgan Global Manufacturing PMI registered 49.6 for December.
• Chinese CFLP PMI (C,M,S) improved slightly to 52.2, 50.1, 52.5 with services and composite readings improving approximately two points and manufacturing sentiment maintaining its level.
• Case-Shiller Home Price Index rose 0.3% MoM in October for a YoY increase of 4.2%, both generally in line with expectations.
• Pending Home Sales for November rose 2.2%, above consensus of 0.9% and the forecast range of -0.1% to 1.0%.