Cela's Weekly Insights - December 29, 2024

As the holiday week unfolded, Wall Street experienced a mix of cheer, volatility, and introspection. Investors saw gains driven by tech momentum early in the week but also faced setbacks as profit-taking and caution crept into the markets. Despite some turbulence, the broader markets showed resilience, offering insights into the dynamics shaping the financial landscape as we approach 2025.

Tech Momentum Powers Early Gains

The holiday season kicked off with strong performances from major indexes, driven largely by the tech sector. The Standard and Poor’s 500 and Nasdaq enjoyed notable gains, supported by the stellar performance of tech giants like Nvidia, Tesla, and Broadcom. Nvidia, a consistent outperformer in 2024, continued its impressive rally, underscoring its dominance in the AI chip market. Other players like Meta and Tesla added to the upward momentum, reinforcing the tech sector's pivotal role in driving market gains.

Investors were buoyed by positive inflation data, as the Fed’s preferred Personal Consumption Expenditures index showed signs of cooling inflation. This tempered fears of aggressive rate hikes, contributing to the week’s optimistic start. While the Federal Reserve hinted at holding rates steady in upcoming meetings, market sentiment reflected cautious optimism about the broader economic outlook. Still, concerns over U.S. consumer confidence lingered, casting a shadow over the week’s early exuberance.

A Breather Amid Mixed Signals

Midweek, the markets began to lose steam. The so-called Santa Claus rally, which brought early holiday cheer, showed signs of fatigue. The Standard and Poor's 500 dipped slightly, while the Nasdaq mirrored its performance with minor losses. Interestingly, small-cap stocks outperformed, with the Russell 2000 delivering a modest gain, suggesting a shift in investor focus toward less-followed sectors.

Meanwhile, the labor market presented mixed signals. Weekly jobless claims fell slightly below expectations, but continuing claims reached their highest levels since late 2021. This divergence sparked speculation about a cooling labor market, potentially influencing the Fed’s monetary policy decisions in the months ahead. On the cryptocurrency front, Bitcoin experienced turbulence, retracing to $96,000 and dragging crypto-related stocks like MicroStrategy along for the ride.

Profit-Taking and Portfolio Rebalancing

The holiday week ended on a somber note, as profit-taking and portfolio rebalancing led to sharp declines across major indexes. The Standard and Poor's 500, Nasdaq, and Dow all closed lower, with the tech-heavy Nasdaq bearing the brunt of the losses. Market darlings such as Tesla, Nvidia, and Amazon saw significant pullbacks, reflecting a cautious turn among investors.

Despite the Friday dip, the markets logged weekly gains, as you can see below in the weekly performance table. These results capped off a year of remarkable market gains, providing a silver lining to an otherwise choppy end to the week.

Looking ahead, two key themes are likely to dominate 2025: Federal Reserve policy and the economic implications of Donald Trump’s return to the White House. The Fed's approach to rate cuts will remain a focal point as inflation moderates and the labor market evolves. Meanwhile, Trump’s ambitious economic plans will be closely scrutinized, with market participants bracing for potential surprises as his administration navigates its priorities.

The holiday week showcased Wall Street’s complexity—a blend of optimism, caution, and recalibration. Tech’s resilience and early gains highlighted the sector’s critical role, while mixed economic signals kept investors vigilant. As the year ends, the focus shifts to 2025, where the interplay of Federal Reserve policy and political developments will set the tone for the markets.

Last Week's Market Performance: A Global Overview

Cela’s Weekly Insights Indicator

That's all for today, folks. For more insights, be sure to join me every weekday morning on my podcast, Capital Markets Quickie, where I break down the most important events in the week ahead. And if you're looking for deeper insights, subscribe to our weekly German capital markets newsletter, Die Woche IM FOKUS, from AMF Capital AG. You'll receive 6 exclusive charts and updates on the fixed income market, the stock market, and the global economy.

Cheerio!

Endrit Cela The Investment Fella - ECB, mm, 411 ??