What’s going on here?
The S&P 500, which rose over 23% in 2024, is now facing volatility as uncertainty looms around the customary Santa Claus Rally amidst fewer Fed rate cuts projected for 2025.
What does this mean?
The S&P 500’s stellar performance this year is being tested as 2024 closes. Typically, the Santa Claus Rally gives end-of-year optimism with average gains since 1969. But with fewer rate cuts projected by the Federal Reserve, investor sentiment has soured, causing the largest index drop since August. Eight out of eleven sectors are in red this December, seeing the equal-weight index slide 7%. Rising 10-year Treasury yields, now at a six-month high of 4.55%, add pressure given lofty equity valuations. This unease is prompting a recalibration of expectations, echoing advice from Miller Tabak and Horizon Investment Services that this pullback might moderate prior exuberance and eventually steady the market.
Why should I care?
For markets: Navigating the holiday risk landscape.
The S&P 500’s lack of momentum and rising benchmark yields signal tough times for stocks. Trading above historical earnings valuations, most sectors are restrained, showing broader market weaknesses. LPL Financial advises waiting for stronger support and improved momentum before making new entries, highlighting the need for caution in this uncertain period.
The bigger picture: Global economic shifts behind market movements.
Historically, the Santa Claus Rally and early January trends have predicted annual market outcomes, with positive rallies forecasting strong years over 90% of the time. However, the current financial climate, influenced by global factors and Fed policy, calls for a reassessment of market strategies. Key players like Tesla and Alphabet still see gains, suggesting selective opportunities amidst broad caution.
