Market Update – December 23rd, 2024

Financial Markets

It was an eventful week leading into the holidays, marked by a Federal Reserve meeting, key inflationary data, and other economic developments—all against the backdrop of a stock market sell-off and a narrowly averted government shutdown as Congress passed a last-minute funding bill Friday night. As of Friday, December 20th, the major indices posted declines for the week: the Dow Jones Industrial Average fell -2.25%, the S&P 500 dropped -1.99%, the Nasdaq Composite declined -1.78%, and the Barclays Aggregate Bond Index was down -0.98%.

Source: Zacks

Market News

December Fed Meeting

The Federal Reserve held its final meeting of the year last week, announcing a widely anticipated 25 basis point rate cut. This decision brought the federal funds rate to a range of 4.25%-4.5%, a level last seen in December 2022. While the rate cut itself was expected, the Federal Reserve’s updated Summary of Economic Projections (SEP), revealed substantially less aggressive rate cuts projected in 2025.

The Fed is now only estimating two, 25 bps rate cuts in 2025, down from the four projected in September. This adjustment would leave rates at approximately 3.9% by the end of 2025. Although a difference of 50 basis points might seem small, it carries significant implications for issuers and investors, leading to last week’s market selloff.

The SEP also highlighted several other important updates in expectations from the central bank. The long-run federal funds rate median projection increased from 2.9% in September to 3% in December. Inflation expectations for both core and headline inflation rose to 2.5% for the end of 2025. Unemployment projections improved slightly, with the expected rate for year-end 2025 decreasing from 4.4% to 4.3%.

Finally, real GDP growth forecasts were revised upward: 2024 growth jumped from 2% to 2.5%, while 2025 saw a smaller increase from 2% to 2.1%. Overall, the SEP painted a picture of an economy stronger than the Fed believed three months ago.

Despite the unexpected drop in projected rate cuts, which led markets to sell-off last week, the overarching message was cautiously optimistic. The Fed appears confident in the economy’s resilience, suggesting they believe they can afford to wait longer before adopting a more accommodative monetary policy stance.

Source: Federal Reserve

November PCE Inflation

Following the Fed’s rate cut decision on Wednesday, PCE inflation data released on Friday came in lower than expected, lifting stocks and recovering some of the week’s earlier losses. Headline PCE inflation rose 2.4% year-over-year, while core PCE increased by 2.8%, reflecting a slight uptick in the headline rate compared to October. On a monthly basis, both measures rose by 0.1% in November. Despite the modest increase in headline inflation, markets were more encouraged by the data coming in below expectations.

Personal Income, Spending, Saving

Friday’s release of the PCE inflation report also included data on personal income, spending, and saving for November. Personal income increased by 0.3% during the month, while personal spending rose by 0.4%, resulting in a slight decline in the personal savings rate to 4.4%. Overall, November’s data reflected a steady month of growth in both income and spending.

Retail Sales

Retail sales in November exceeded expectations, rising 0.7% following an upwardly revised 0.5% gain in October. Year-over-year, sales increased by 3.8%, reflecting a robust holiday shopping season and a growing pace of consumer spending. Online shopping drove much of the growth, with nonstore retail sales surging 9.8% from the previous year. Other strong categories included motor vehicles and parts, which posted a 6.5% annual increase. These month’s strong retail sales figures suggest that consumer spending remains a healthy pillar of the US economy.

Existing Home Sales

Existing home sales rose 4.8% in the month of November, reaching a seasonally adjusted annual rate of 4.15 million. This marked a 6.1% year-over-year increase, the largest annual increase in existing home sales in three years. The median sales price climbed 4.7% from a year ago to $406,100, while inventory levels rose to 3.8 months’ worth of supply, indicating more homes available on the market. These trends may suggest that consumers are adapting to a “new normal” of mortgage rates ranging between 6% and 7%.

Summary

Heading into the holidays, the week brought a mix of key economic updates and market turbulence. The Federal Reserve cut rates by 25 basis points but surprised investors with a less aggressive outlook for rate cuts in 2025. Retail sales data exceeded expectations, highlighting robust consumer spending, while personal income and spending posted steady gains. Additionally, existing home sales saw their largest annual increase in three years, signaling resilience despite elevated mortgage rates.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.

Content is used with the permission of Synergy Asset Management. This information is being provided to you as it has been determined by SPG Advisors LLC to be suitable in relation to your portfolio, needs, objectives, and other considerations. SPG Advisors, LLC and Synergy Asset Management are affiliated. All such information is provided solely for convenience, educational, and informational purposes only. Past performance does not guarantee future results. All investing comes with risk, including risk of loss. No investment strategy can guarantee a profit or protect against loss in periods of declining values. All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form without the prior written permission of the publisher.

More Market Updates