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The Markets – December 23, 2024
IN THE MARKETS
U.S. stocks declined over the week, with losses broad-based and smaller-cap indexes faring the worst, although a Friday rally helped major indexes recover some ground. Traders noted that Thursday marked the 14th consecutive session with more decliners than gainers in the S&P 500, the longest streak since 1978, raising concerns about the sustainability of recent gains. Market sentiment was dominated by the Federal Reserve’s policy meeting, where a widely expected 0.25 percentage point rate cut brought the total reduction to 1.00 percentage point since September. However, investor sentiment soured on Wednesday after Fed Chair Jerome Powell’s remarks that core inflation forecasts for 2025 had risen to 2.5% from 2.2% in September and that policymakers anticipated fewer rate cuts in 2025 than previously expected. The hawkish tone triggered a nearly 3% drop in the S&P 500, marking its second-worst day of the year.
U.S. MARKETS
DOW & TECH
The Dow ended the week down 2.25% at 42,840.26 vs the prior week of 43,828.06.
The tech-driven Nasdaq ended the week down 1.78%, closing at 19,572.60 vs. the prior week of 19,926.72.
BY MARKET CAP
- Large-Cap: The S&P 500 ended the week down 1.99%, closing at 5930.85 compared to last week’s 6051.09.
- Mid-Cap: The S&P 400 mid-cap ended the week down 4.67%, closing at 3124.28 compared to last week’s 3277.20.
- Small-Cap: The Russel 2000 ended the week down 4.45%, closing at 2242.37 compared to last week’s 2346.90.
U.S. COMMODITIES / FUTURES OVERVIEW
THE VOLATILITY INDEX for 2024 (VIX)
VIX closed at 18.36 this week, a 32.9% increase vs last week’s close of 13.81.
INTERNATIONAL MARKETS
U.S. MARKET NEWS
Government shutdown concerns limit returns:
Investor confidence wavered during the week as fears of a looming government shutdown overshadowed positive economic data, with multiple failed attempts to pass legislation to fund government operations, including a proposal backed by President-elect Donald Trump. Despite political uncertainty, economic reports offered some reassurance: the Commerce Department revealed that the U.S. economy grew at an annualized rate of 3.1% in the third quarter, exceeding the prior estimate of 2.8%, driven in part by increased consumer spending, while retail sales rose 0.7% in November. Jobs data also provided a positive signal, with initial jobless claims dropping to 220,000 and continuing claims declining to 1.87 million. The week concluded with the release of the core personal consumption expenditure (PCE) inflation report, showing a 2.8% year-over-year rise in November, consistent with October’s reading and slightly below expectations, helping lift stocks on Friday and mitigating the week’s earlier losses.
INTERNATIONAL MARKET NEWS
Europe
The pan-European STOXX Europe 600 Index dropped 2.76% for the week, marking its steepest loss in over three months, as sentiment weakened due to U.S. President-elect Donald Trump’s warning about potential trade tariffs on the European Union and uncertainty surrounding interest rates. Major indexes also declined, with Germany’s DAX losing 2.55%, Italy’s FTSE MIB falling 3.22%, France’s CAC 40 dropping 1.82%, and the UK’s FTSE 100 sliding 2.60%. Meanwhile, the Bank of England (BoE) kept its key interest rate steady at 4.75%, although three of nine Monetary Policy Committee members advocated for a 0.25% cut due to weak demand and labor market concerns. The majority, however, cited rising wages and prices as increasing the risk of persistent inflation, with Governor Andrew Bailey emphasizing the need for a gradual approach to future rate cuts amid economic uncertainty. November’s headline inflation rose to 2.6% from 2.3% in October, driven by higher gasoline and clothing costs, while underlying pressures stayed strong, and average weekly earnings, excluding bonuses, exceeded forecasts, climbing 5.2% in the three months through.
Japan
Japan’s stock markets declined over the week, with the Nikkei 225 Index falling 1.95% and the broader TOPIX Index down 1.6%, as banks faced pressure from growing expectations that the Bank of Japan (BoJ) might adopt a slower pace of monetary policy normalization. The 10-year Japanese government bond yield remained steady at 1.05%, while a sell-off in the yen supported the profit outlook for exporters, particularly automakers, as the yen weakened to the high-JPY 156 range against the USD from about 153.7 the previous week. This prompted verbal intervention from Japanese authorities to stabilize the currency. Meanwhile, the BoJ kept its policy rate unchanged at approximately 0.25% during its December 18–19 meeting, with BoJ Governor Kazuo Ueda’s dovish comments suggesting a reduced likelihood of a near-term rate hike, tempering market expectations for a January adjustment.
China
Chinese equities fell as disappointing data heightened concerns about the economy, with the Shanghai Composite Index down 0.7%, the blue-chip CSI 300 losing 0.14%, and Hong Kong’s Hang Seng Index dropping 1.25%. November activity data highlighted the uneven nature of China’s recovery amid trade tensions with the U.S., as retail sales grew a below-consensus 3% year-over-year, down from October’s 4.8%, reflecting weak consumer spending. Fixed asset investment rose 3.3% from January to November, missing expectations and trailing October’s 3.4% pace, while property investment contracted 10.4%. However, industrial production grew a stronger-than-expected 5.4%, driven by demand for robots, passenger cars, and solar panels. Youth unemployment eased for the third straight month, with the jobless rate for 16- to 24-year-olds, excluding students, falling to 16.1% in November from 17.1% in October, while urban unemployment held steady at 5%. Meanwhile, new home prices in 70 cities declined by 0.1% in November, the smallest drop since June 2022, signaling stabilization in the property market following Beijing’s policy measures to revive the sector. Analysts expect further government efforts to boost growth as China faces challenges, including higher tariffs under the incoming Trump administration.
HIGHLIGHTED STORY
https://www.visualcapitalist.com/the-share-of-u-s-companies-with-negative-earnings/
December 17, 2024
What We’re Showing:
Amid robust consumer demand and U.S. economic resilience, only a fraction of America’s largest companies have negative earnings this year.
In 2024, S&P 500 firms are forecast to see 9.5% annual earnings growth, exceeding their 10-year average of 8%. Overall, corporate profits have surged by nearly 70% since 2020, led by big tech companies investing in AI technologies. But looking beyond corporate giants, profitability is not as widespread given the riskier nature of small and mid-cap companies.
This graphic shows the share of companies with negative earnings in U.S. markets, based on data from Apollo.
Key Takeaways:
While the vast majority of S&P 500 companies are seeing positive earnings in 2024, earnings growth is being propelled by a handful of technology giants.
In 2024, the Magnificent Seven is projected to drive 62% of earnings growth across the index, with Nvidia making up 13% of the total. Over the next few years, this trend is projected to continue, although at a slower pace amid increasing competition from new players and higher infrastructure costs.
For mid-cap companies, seen in the Russell Midcap Index, the share of companies with negative earnings stands at 14%, given their higher debt loads.
Over the last decade, mid-cap stocks have lagged behind large-caps, largely due to the outperformance of big tech. However, earnings growth across mid-cap stocks has typically risen at a faster pace since many are developing breakthrough technologies.
Additionally, monetary easing and Trump’s proposed corporate tax cuts could have an outsized effect on small and mid-cap companies due to lower borrowing costs.
While small-cap stocks have been on an impressive run this year, the share of unprofitable companies is considerably high, at 42% of firms in the Russell 2000—up from 14% two decades ago. Like mid-cap stocks, they have underperformed large-caps since 2014, but increasing investor risk appetite may drive an upswing looking ahead.