U.S. Stocks End Week in the Red Despite Friday Rally
U.S. stocks wrapped up the week with losses, even as a Friday rally provided a temporary boost. The markets have struggled heading into the holiday season, facing headwinds from economic data and policy uncertainties.
December Struggles Dampened Rally Momentum
An early December shift triggered what Mark Hackett, chief market strategist at Nationwide, called a “breakdown in breadth” in the U.S. stock market. November’s strong performance may have pulled forward gains that typically occur during the “Santa Claus rally,” Hackett said in an interview.
“I don’t feel comfortable that the traditional Santa Claus rally is going to come,” he added.
The Dow Jones Industrial Average (DJIA) erased most of its quarterly gains, dropping 4.6% in December. The S&P 500 (SPX) posted back-to-back weekly losses, while the Nasdaq Composite (COMP) ended a streak of four consecutive weekly gains, according to Dow Jones Market Data.
Fed Policy and Economic Uncertainty
This week’s market stumble followed signals from the Federal Reserve that its projected rate cuts in 2025 might be less aggressive than previously anticipated. Concerns about sticky inflation and a narrowing market breadth have tempered optimism that accompanied November’s rally.
Seasonal Trading Patterns
The S&P 500 has historically gained 1.29% on average during the seven-session “Santa Claus rally” period, which starts Christmas Eve. However, last year saw a 0.9% decline during this stretch, and current market conditions suggest a repeat performance could be on the horizon.
Inflation Data Brings Temporary Relief
On Friday, markets rallied after November inflation data showed a smaller-than-expected increase in the personal consumption expenditures (PCE) price index. The Dow surged 1.2%, marking its biggest one-day gain since November, while the S&P 500 and Nasdaq rose 1.1% and 1%, respectively. Despite the rally, the Dow fell 2.3% for the week, the S&P 500 dropped 2%, and the Nasdaq declined 1.8%.
Big Tech Takes a Hit
Big Tech stocks, which have driven much of 2024’s market gains, delivered mixed performances. The Roundhill Magnificent Seven ETF (MAGS), offering equal-weight exposure to Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta, ended the week down over 1%, snapping four weeks of gains.
Policy Concerns Linger
Market sentiment remains clouded by uncertainty over government spending, trade, and immigration policies expected in 2025 under the new administration. Analysts fear aggressive trade measures or immigration reforms could exacerbate inflation and hinder growth.
A Strong Year Faces a Weak Finish
Despite December’s losses, 2024 has been a stellar year for stocks. The Nasdaq has climbed 30.4% year-to-date, while the S&P 500 is up 24.3%, and the Dow has gained 13.7%. The S&P 500 remains 2.6% below its December 6 record high, with analysts predicting muted performance for the remainder of the year.
“There’s a lot of optimism already priced into stocks,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “We’ve had a really strong year in the market.”
