Note: There are 2 important stock updates today in Stock Picks.
Friday’s (December 6, 2024) closing numbers
For the trading week from December 2 to December 6, 2024, here is my analysis of the major U.S. indices:
- Dow Jones Industrial Average: The Dow ended the week down 0.7%, reflecting broader market challenges, particularly in cyclical sectors like industrials and materials. Volatility increased as economic data raised uncertainty about interest rates and growth prospects.
- S&P 500: The index declined by 0.5% for the week. While certain defensive sectors like utilities and consumer staples showed resilience, tech and communication services pulled back after recent gains.
- NASDAQ Composite: This index fell by 1.1%, driven by a pullback in mega-cap technology stocks like Apple and NVIDIA, which had been market leaders earlier. Treasury yields weighed on growth-oriented sectors. But the 10-year treasury the past few weeks has reversed the course of its ascent, which is good for the overall market.
- Russell 2000 (Small Caps): The Russell 2000 small-cap index declined during the week, falling approximately 1.3%. This downturn was attributed to investor caution amid mixed economic data and renewed concerns about growth in the U.S. domestic economy. The losses were broad-based, spanning various small-cap sectors. Despite a strong performance in November, where it gained 10.8%, the Russell 2000 has shown signs of slowing momentum in December.
Rotational Flows
- Short-Term: Last week’s data does not suggest significant inflows into small-cap stocks. Instead, there was a modest outflow as investors showed a preference for larger-cap, defensive sectors.
- Medium-Term Trend: Despite this week’s decline, the Russell 2000 had experienced substantial inflows in November, partly due to optimism about U.S. domestic growth and favorable fiscal policy expectations.
Market Context
The small-cap space remains sensitive to U.S. economic trends, given its domestic revenue focus. Broader concerns over economic resilience may have contributed to the lackluster performance in early December. Time will tell if this is just profit-taking after the big run it had last month or something larger.
Sector Trends
- Increased Interest: Healthcare and utilities attracted more investment this week due to their defensive characteristics in a volatile market.
- Decreased Interest: Technology and consumer discretionary sectors saw reduced inflows, reflecting profit-taking and concerns about valuation after a strong performance earlier in the year.
Volume and Highs/Lows
- Trading volumes increased in the middle of the week during the release of economic data but tapered off toward Friday.
- New highs across all indices decreased compared to the prior week, while new lows edged higher, highlighting increasing market caution.
The market’s mixed performance reflected consolidation and broader concerns about the new policy risk a new administration brings to inflationary-type policies, which create economic uncertainty. Geopolitical risks are impacting investor sentiment, while not a big problem now it could create negative sentiment in the not-too-distant future.
New Highs and New Lows
During the week of December 2–6, 2024, new 52-week highs and lows across U.S. stock exchanges demonstrated mixed market breadth compared to the previous week. As new highs decreased. If new lows start picking up and new highs continue to decrease it spells trouble down the road. For now it just looks like a consolidation as institutions move more money out of tech and into defensive-type positions. Healthcare, Utilities and Banks have caught the attention of institutions, Banking because of possible deregulation while Utilities and Healthcare for its defensive posture of market volatility.
- New Highs: The total number of stocks reaching 52-week highs decreased across major exchanges, reflecting more subdued optimism. For instance, on the NYSE, new highs were approximately 20% lower than the prior week, while the NASDAQ composite also saw a decline in stocks achieving fresh yearly highs.
- New Lows: The number of stocks hitting 52-week lows rose, particularly on the NASDAQ, where tech and growth-heavy names experienced pressure amid sector-specific selloffs. The NYSE showed a moderate increase in new lows, suggesting a broadening weakness beyond just tech stocks.
What this means
Currently, the market appears to be consolidating as institutional investors take a defensive approach for 2025 as they await the Federal Reserve’s statement on December 18th. While many anticipate a quarter-point cut in the Federal Funds Rate at this meeting, expectations could shift depending on the Consumer Price Index (CPI) report due on Wednesday. If inflation data shows signs of cooling and is not “hot,” it increases the likelihood of a rate cut. Additionally, the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) report, will be released on December 20th.
Stay tuned—these reports are critical in shaping market sentiment, which has been a driving force behind the current bull market rally. Understanding market sentiment remains key as we navigate this economic landscape.