Market Update: December 16, 2024
Economic data included consumer price inflation rising, but at a similar pace to the prior month, while producer price inflation ticked up at a faster pace.
Equities were mixed to down globally, with some positivity in U.S. growth and emerging markets. Bonds were down as yields rose for the week. Commodities gained on the heels of a spike in crude oil prices.
U.S. large cap stocks continued their gains last week, with the S&P, Dow, and NASDAQ reaching more all-time highs, while small caps fell back. Growth outperformed value by the largest margin in over a year, led by the concentrated Magnificent 7 group. By sector, strong gains in consumer discretionary of 6% (led by Tesla and Amazon), technology, and communications offset declines elsewhere, notably declines of -4% in energy and utilities. Real estate also fell back despite the small drop in yields.
Foreign stocks also saw gains last week, led by strength in Europe and Japan, as well as emerging markets to a lesser degree. European stocks experienced a bit of a relief rally after the French Parliament held a no-confidence vote (for the first time in 60 years, after a record-short three months in office), following budget disagreements, with the ultimate announcement that a new prime minister that appealed to multiple factions would be appointed, which reduced some of the concerns. Otherwise, weak industrial data in Germany and general recession-like conditions in that key country led to further assumptions of more ECB rate cuts. The Chinese government unveiled a 10 tril. RMB local government debt swap plan, intended to reduce ‘hidden’ debt and strengthen local finances, which helped sentiment there. If it was assumed the U.S. was the only nation with strong political polarization at the moment, actions in France and South Korea (not to mention Syria) over the past week reiterated that this has been a global phenomenon. In the Korean case, the President imposed martial law (albeit lasting for only a few hours, after being immediately vetoed by parliament) in reaction to political disagreement and protests, seen as a surprise and undesirable move in light of several decades of democratic rule after prior authoritarian leadership. In emerging markets (South Korea being considered on the fringe between developed and emerging, like Taiwan), such events can erode market confidence, at least temporarily, but serve as a reminder of why they demand higher risk premiums. Rising government disagreement in several developed markets (France and U.K. being examples) has been more nuanced, but a common theme has been the sizes of next year’s budgets, in an era of already inflated debt-to-GDP ratios post-pandemic.
Bonds fared positively, with U.S. Treasuries and investment-grade corporates ending up with similar gains of around a half-percent, while high yield and floating rate bank loans earned smaller gains. Developed market bonds were held back by a stronger U.S. dollar, while emerging market debt was mixed.
Commodities were mixed with agricultural and industrial metals prices higher, offset by declines in energy and precious metals. Crude oil declined -1% last week to $67/barrel, as demand uncertainty for 2025 outweighed the OPEC+ decision to postpone production increases until next year as well, seemingly for the same reason. (The ouster of the Bashar al-Assad regime in Syria after a decade-long civil war elevated prices early this morning, not because of the country’s role as a key producer, but more due to the uncertainty of Middle East power dynamics looking ahead, in addition to a Chinese stimulus announcement.) Natural gas prices fell by nearly -10% with lowered concerns about potentially reduced Russian exports to Europe.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.