Market Surge: S&P 500 Rallies 1.1% on Cooler Inflation Data
Stock Market Recap: Why Was the Market Up Today?
The U.S. stock market ended the week on a high note Friday, December 20, 2024, as investors cheered cooler-than-expected inflation data. This positive turn helped alleviate some of the losses incurred earlier in the week following the Federal Reserve’s hawkish stance on interest rate cuts.
Major Market Indexes Performance
S&P 500 (^GSPC): The benchmark index rallied 1.1%, gaining 63.77 points to close at 5,930.85. This surge helped trim the week’s losses to 2%.
Dow Jones Industrial Average (^DJI): The Dow jumped nearly 500 points, or 1.2%, ending the session at 42,840.26.
Nasdaq Composite (^IXIC): The tech-heavy Nasdaq gained 1%, adding 199.83 points to finish at 19,572.60.
Russell 2000 (^RUT): The small-cap index rose 0.9%, or 20.87 points, to 2,242.37.
Key Market Drivers
The market’s upward momentum was primarily fueled by the release of the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge. The core PCE price index, which excludes volatile food and energy prices, rose 0.1% month-over-month in November, lower than the expected 0.2% increase. This data suggests that inflation might be cooling faster than anticipated, potentially influencing the Fed’s future monetary policy decisions.
Sector Performance and Notable Stocks
While eight of the eleven S&P 500 sectors remained in negative territory for December, several big tech stocks continued to show strength:
1. Tesla (TSLA): Up 26% in December
2. Alphabet (GOOGL): Gained over 12% this month
3. Broadcom (AVGO): Surged 35% after forecasting strong demand for AI chips
However, the market rally remains somewhat narrow, with the number of declining S&P 500 components outpacing advancers for 13 consecutive sessions as of Wednesday.
Upcoming Market Events
Investors are closely watching several key events that could impact market performance in the coming days:
1. Government Shutdown Concerns: A potential partial government shutdown looms as lawmakers struggle to reach a funding agreement.
2. “Santa Claus Rally” Expectations: Historically, the last five trading days of the year and the first two of the new year often yield positive returns. However, the strong November performance may have front-loaded some of these gains.
3. Year-End Portfolio Rebalancing: Institutional investors may make significant moves to adjust their holdings before the year’s end.
Market Outlook and Analyst Perspectives
Despite the day’s gains, some analysts remain cautious about the market’s near-term prospects:
Matt Maley, chief market strategist at Miller Tabak, warned that rising Treasury yields could put pressure on equity valuations, especially given the S&P 500’s current forward price-to-earnings ratio of 21.6, well above its historical average of 15.8.
Chuck Carlson, CEO of Horizon Investment Services, suggested that this week’s pullback might have eliminated some frothy sentiment, potentially setting up the market for a rebound.
Conclusion
As 2024 draws to a close, the U.S. stock market demonstrated resilience, bouncing back from mid-week losses triggered by the Federal Reserve’s cautious outlook on rate cuts. The unexpected decline in core PCE inflation provided a much-needed boost to investor sentiment. However, challenges remain, including potential government shutdown risks and concerns about market valuation.
Investors will be closely monitoring economic data and policy developments in the coming weeks, hoping for a strong finish to what has been a robust year for U.S. equities. As always, maintaining a diversified portfolio and staying informed about market trends will be crucial for navigating the evolving financial landscape.
