CWS Market Review – December 17, 2024

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Growth Stocks Rally

Growth stocks, apparently, have the holiday spirit. Nearly every day for the past three weeks, growth stocks have outpaced the overall market.

Of course, you’ll often see growth or value lead the market for a few days, but this recent turn towards growth has been especially pronounced.

Value is playing the role of the Grinch. The S&P 500 Value Index has closed lower for 13 days in a row. On Tuesday, the Dow closed lower for the ninth day in a row. That’s the index’s longest losing streak since 1978.

Meanwhile, Apple, Google and Tesla all hit new 52-week highs today.

The message is clear as we head into 2025: investors are perfectly fine with shouldering more risk. Tech stocks have done especially well, and the Nasdaq 100 ETF has been on fire.

The point I often stress to investors is that growth and value cycles don’t magically fall out of the sky. They often get a nice push from our friends at the Federal Reserve.

As it turns out, the Fed is meeting this week. In fact, today was the first day of their two-day meeting. The Fed’s policy statement will be out tomorrow afternoon, and I’ll spoil the surprise for you: you can be sure that the Fed will cut interest rates by 0.25%.

At this meeting, the Fed will also update its economic projections. I’ll caution you that the Fed doesn’t exactly have a stellar record when it comes to forecasting the economy. Not many of us do. Still, it’s important to see how they’re wrong.

The big question now is what happens in 2025. There’s an emerging consensus that the Fed will pause at its January meeting. Here’s the Fed Funds rate (in blue) being chased by its shadow, the 2-year Treasury yield (in red):

Until now, the Fed has made it clear that it wants to lower interest rates, but now Wall Street thinks they may be getting ahead of things. After all, the last CPI report showed that inflation is being very stubborn, and there are plenty of bright spots in the economy.

Traders even think there’s a decent chance that the Fed will pause at its March meeting. That’s not the majority view, at least not yet.

The undercurrents in the stock market are reacting to the outlook for interest rates. When short-term rates are falling, value stocks tend to outperform. When short-term rates are rising, value stocks tend to lag.

In this instance, rates aren’t even going up. Rather, the recent trend of lower rates is cooling off. This makes sense as the economy appears to be doing well.

Shortly after President-Elect Trump’s election victory, many “old economy” sectors rallied, but that trend came to a quick halt in December.

Retail Sales Were Strong Last Month

Shoppers are in a good mood. This morning, we learned that retail sales increased by 0.7% last month. Wall Street had been expecting a gain of 0.5%. The number for October was revised higher to 0.5%. Over the last year, retail sales are up by 3.8%. This suggests that the economy did well during Q4.

Economists like to look at “core” retail sales which excludes cars, gasoline, building materials and food services. For November, core retail sales were up by 0.4%. That comes after a 0.1% drop in October.

Receipts at food services and drinking places, the only services component in the report, fell 0.4% after increasing 0.9% in October. Economists view dining out as a key indicator of household finances.

Sales at clothing stores decreased 0.2%. Grocery store sales also declined 0.2%. Sales at miscellaneous retailers, which include florists and gift shops, dropped 3.5%, extending the prior month’s decline.

Sales at auto dealerships increased by 2.6%. Online retail sales grew by 1.8%. Building materials and garden equipment store sales rose 0.4%.

There are some weak spots in the economy. This morning, the Federal Reserve said that industrial production fell by 0.1% last month. That was the third month in a row that industrial production fell. Wall Street had been expecting an increase of 0.3%.

The Santa Claus Rally

We’ve also just started the stock market’s happiest time of year which is the Santa Claus Rally. I’ve crunched all the numbers for the S&P 500 going back to 1957 when the index was expanded to 500 stocks.

From December 15 to January 6, the S&P 500 has gained an average of 2.81%. That may not sound like a lot, but as far as 67-year averages go, it’s quite large. This means that historically, one-quarter of the S&P 500’s annual gain has come during a three-week period in the holiday season.

This is what the average year for the S&P 500 looks like:

If we expand our parameters a bit, we see that the S&P 500 has gained an average of 8.24% from October 26 to February 15. That means that nearly three-quarters of the S&P 500’s annual gain has come during a period of less than four months. During the rest of the year, the market hasn’t done much. (Buy the World Series and sell the Super Bowl?)

To be clear, I would never base an investment decision on these calendar effects. I find it fascinating that the markets do seem to have their biases regarding time of year. The monthly cycle is especially impressive.

In the short-term, the market can be highly erratic, but in the long term, its judgments are wise.

That’s all for now. Remember: On Christmas Day, I’ll send you the names of the 25 stocks for the 2025 Buy List. This will be our 20th Buy List!

– Eddy

Posted by on December 17th, 2024 at 3:24 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.