Weekly Market Commentary December 16th to December 20th 2024

A heavy week of data releases kicked off with a strong Retail Sales report for November. Consensus called for an increase matching October’s revised +0.50%, but the consumer ultimately flexed more muscle and the result came in at +0.70%, boding well for the start of the holiday shopping season. Next up was some mixed news from the real estate sector. Housing Starts for November dropped 1.75% from the previous month; Building Permits were up 6.10%; and Existing Home Sales were up 4.8%. As the weather cools and winter arrives, real estate volatility tends to increase.

On Wednesday, the Fed cut short-term interest rates by 25 bps in a move unanimously expected. What wasn’t expected was the rhetoric concerning the pace of continued cuts. The Fed implied that rate cuts going forward would be more measured and deliberate. Expectations for cuts next year dropped to two and the equity markets responded dramatically with all major indices off sharply. Inflation has stubbornly been stuck in the high 2% range for the past few months and the Fed acknowledged the final push to get to 2% may be the most difficult.

Speaking of inflation, on Friday the Personal Consumption Expenditures index (or PCE) came in lower than expected at 2.4% and the Core PCE followed suit at 2.8%. The Fed tends to focus on the PCE indices as their main source for measuring inflation so this ended the week with some good news. Both Personal Spending and Personal Income were down from the previous month, but in another example of the wishy-washiness of the data this week, third quarter GDP was revised upward from 2.8% to 3.1% on the backs of strong consumption and exports.

Investor euphoria of the concise election results seems to have worn off and the markets are reevaluating the recent run-up. Despite a strong finish on Friday, the S&P 500 was lower on the week by 2.0%; the Dow Jones Industrials fell for 10 days in a row (not seen since 1974) and closed down 2.3%; and the Nasdaq Composite dropped 1.8%. In the fixed income markets, bonds fared just as poorly. The yield on the 10-Year U.S. Treasury was higher by 13 basis points on the week, closing at 4.53%, with the spread over the 2-Year widening to 22 basis points.

Next week’s data will be very limited due to the holiday-shortened week. Look for Durable Goods and New Home Sales as the only important releases. We at Plimoth Investment Advisors wish all a very happy holiday season.