Wall Street sentiment has turned cautious as the stock market rally pauses ahead of the Federal Reserve’s final meeting of 2024. Investors hoping for a December surge led by tech stocks have been met with disappointment, raising concerns about the market’s resilience.
The S&P 500 Value Index (SPYV) extended its record losing streak, while the Dow Jones Industrial Average (DJIA) marked its seventh consecutive decline on Friday, the longest since February 2020.
Talley Leger, chief market strategist at the Wealth Consulting Group, expressed hope for a market correction. “I would love to see a meaningful pullback in equities,” said Leger, noting that some turbulence in 2025 could follow the year-end boost traditionally fueled by holiday shopping and seasonal optimism.
The S&P 500 Index (SPX) remained flat on Friday but is on track for consecutive annual gains exceeding 20% for both 2023 and 2024—a remarkable achievement given earlier recession fears. However, this bull market hasn’t seen a 15% pullback since October 2022, an unusually long stretch, according to Dow Jones Market Data.
David Laut, chief investment officer at Abound Financial, likened the current market to a scene from Titanic: “Your arms are wide open on the bow.” While optimism remains strong, bolstered by expectations of corporate tax cuts and deregulation under President-elect Donald Trump’s second term, Laut warns of risks like inflation, disappointing earnings, and geopolitical challenges.
“Why not take some money off the table?” Laut suggested, advocating a shift toward mid- and small-cap stocks, emerging markets, and strategic cash reserves. He also recommends a modest allocation to gold and crypto as hedges.
One major concern is the dominance of megacap technology stocks, dubbed the “Magnificent Seven,” which continue to skew the market’s performance. For every dollar invested in the SPDR S&P 500 ETF Trust (SPY), 31 cents go to these giants. Laut’s strategy for 2025 is to take a more balanced and opportunistic approach.
Echoes of the ’90s
The Fed’s upcoming rate decision looms large. A 25-basis-point cut is expected this week, but Fed Chair Jerome Powell’s cautious stance suggests a more measured pace of easing in 2025, especially if inflation proves stubborn. Talley Leger sees parallels with the mid-1990s, a period marked by a tech-led economic boom and gradual rate cuts. “This environment feels a lot like the run-up to tech mania 1.0,” Leger observed, cautioning that the Fed might adjust its course if inflation remains “sticky.”
Despite the Fed’s efforts to lower borrowing costs, 10-year Treasury yields rose significantly last week, highlighting persistent inflationary pressures. George Cipolloni, portfolio manager at Penn Mutual Asset Management, warns that higher yields could temper market enthusiasm. “The market wants cuts, but the fly in the ointment is yields. It’s going to be tough.”
Looking Ahead
Key events this week include the Fed’s rate decision on Wednesday, followed by November’s PCE inflation gauge on Friday. Updates on manufacturing, retail sales, and home starts will offer further clues about the economy’s trajectory.
Despite a challenging week, the broader market remains strong year-to-date, with the Dow up 16.3%, the S&P 500 climbing 27%, and the Nasdaq surging 32.7%, according to FactSet. Investors now await the Fed’s guidance as they navigate a complex landscape of optimism and caution heading into 2025.
