Weekly Commentary

December 27, 2024

The shortened Christmas week saw continued volatility on the back of the previous week's considerable market gyrations, as interest rates especially saw strong movement on low volume.? The 10-year rate on Friday traded above the 4.60% handle, as strong holiday sales numbers that came out after Christmas have further reduced market expectations of rate cuts by the Fed, and the longer end has seen rates backup more than short-term rates, causing the yield curve to steepen considerably.? Stocks meanwhile have had a choppy ride, with Friday posting a significant sell-off (by midday Friday).? We do not read a lot into this week's market performance given the low volume and shortened trading sessions, but come next?week, we should get a better assessment of market sentiment, especially in anticipation of the Trump inauguration in three weeks.? Look for rebalance trades to be prominent in the last two trading days of the year, as tax harvesting is a major trading motivation for Monday and Tuesday of next week.??

Geopolitics also saw a turbulent week, with the South Korean president being impeached, a commercial airliner being shot down, presumably, by the Russians, and European economies mired in political uncertainty.? For some of these problems, we see opportunities to invest, especially in South Korea, while in others, namely Europe, we see no light at the end of the tunnel, especially given the looming trade war and transatlantic rifts. Therefore, not all selloffs are a buying opportunity, but we do find some to be interesting, especially in those countries with strong economic fundamentals.??

Finally, as we look back at the 2024 calendar year, stocks posted a very strong gain in the US, with tech leading the way once more.? But as the Mag 7 stocks need more and more earnings growth to remain a market driver, we see more opportunities in undervalued sectors within the US stock market, as the drivers for next year are possibly different from the current ones.? Needless to say, next year will be an interesting one indeed.