A Record-Breaking Rally: Navigating the Final Month of a Stellar Year for the Stock Market
The final trading month of 2024 is upon us, and with it comes the potential for a historic finish to what’s already been a remarkable year for the stock market. Stocks are trading at or near all-time highs, fueled by a strong macroeconomic backdrop and positive earnings growth forecasts. While some acknowledge the market’s potentially high valuation and exuberant sentiment, the prevailing optimism is palpable, especially considering December’s historically favorable performance for the S&P 500. However, upcoming economic data releases and the incoming administration’s policies introduce an element of uncertainty that investors must carefully navigate. The upcoming November jobs report, in particular will be crucial in shaping expectations for the Federal Reserve’s next move on interest rates.
Key Takeaways
- Record-Highs: The Dow Jones Industrial Average and S&P 500 have recently hit all-time highs, with the S&P 500 up 26% for the year.
- December’s Historically Strong Performance: December is typically the strongest month for the S&P 500, offering both high returns and low volatility
- November Jobs Report: The upcoming November jobs report is a critical piece of data that will significantly influence the Federal Reserve’s interest rate decisions in December.
- Potential Rate Cut: Markets are anticipating a potential rate cut by the Federal Reserve in December, though expectations have fluctuated recently.
- Economic Data and Uncertainty: Investors will need to assess a significant amount of incoming economic data throughout December, along with the uncertainty surrounding the new administration’s policies.
A December to Remember?
Sam Stovall, chief investment strategist at CFRA Research, highlights December’s historically positive performance for the S&P 500. Based on data since 1945, the S&P 500 has registered an average gain of 1.6% in December, rising in price more than three-quarters of the time. “Like something out of Santa Claus, you could say, ‘on Dasher, on December,’” Stovall quipped, “Because December continues to dash ahead, normally.” A typical December performance could propel 2024 into the ranks of history’s best years for the stock market. With the S&P 500 already up 26%, only six years in the past 50 have seen gains exceeding 27%.
Market Valuation Concerns
Despite the positive outlook, Stovall cautions against blindly chasing gains at current valuations. “While you can’t really time the market with those kind of valuations, I think you say to yourself, do I really want to be backing up the truck right now?” he said. “We probably have to go through at least a correction in time, meaning that the market sort of treads water until earnings and sales improve, or you have a correction in price where the prices come down to more normal valuations.” This sentiment underlines the inherent risks and uncertainties associated with investing, even during periods of apparent strength.
The November Jobs Report and the Fed’s Next Move
The upcoming November jobs report, scheduled for release on Friday, December 6, holds significant weight for investors. This report will provide the last major assessment of the labor market before the Federal Reserve’s meeting on December 17-18, making it crucial for determining future interest rate trajectory. Investors are hoping for a report that shows robust labor market growth but with some signs of cooling, this would support the Fed’s ongoing path of easing monetary policy.
Expectations for the November Jobs Report
FactSet’s consensus estimate forecasts that the U.S. economy added 177,500 jobs in November, a significant increase from the 12,000 added in October (which was largely dismissed as an outlier due to weather anomalies). The unemployment rate is expected to rise slightly to 4.2%, from 4.1%. Such data could reinforce expectations for a December rate cut. While recent market sentiment had slightly lowered the probability of a rate cut in December, recent inflation and GDP data has renewed those hopes.
Market’s Expectations for a Rate Cut
According to the CME FedWatch Tool, markets currently assign roughly a 67% chance to a quarter-point rate cut at the December meeting. This illustrates the market’s sensitivity to the employment data and its impact on the Fed’s policy decisions.
Upcoming Economic Data and Earnings Reports
December will not only bring the crucial jobs report, but it will also be busy with other economic indicators and corporate earnings announcements. Investors will be closely watching the following data points:
- S&P PMI Manufacturing final (November)
- Construction Spending (October)
- ISM Manufacturing (November)
- JOLTS Job Openings (October)
- ADP Employment Survey (November)
- PMI Composite final (November)
- S&P PMI Services final (November)
- Durable Orders (October)
- Factory Orders (October)
- ISM Services PMI (November)
- Fed Beige Book
- Continuing Jobless Claims
- Initial Claims
- Trade Balance (October)
- Michigan Sentiment preliminary (December)
- Consumer Credit (October)
Meanwhile, several notable companies will report their earnings, including Salesforce, Dollar General, Dollar Tree, Campbell Soup, Hormel Foods, Ulta Beauty, Hewlett Packard Enterprise, and Kroger. These earnings reports will provide further insights into the health of various sectors of the economy and shape market expectations.
Navigating the Uncertainty
The final month of 2024 presents a complex scenario for investors. While the potential for a historically strong December performance is enticing, the confluence of upcoming economic data, the Fed’s policy decisions, and the new administration’s policies introduces a significant level of uncertainty. Careful analysis of all available information, alongside a well-defined risk management strategy, will be critical for investors seeking to navigate this period successfully and capitalize on the opportunities presented.
It is important to remember that past performance is not indicative of future results, and while the data suggests optimism, unforeseen events could alter the trajectory of the market. Investors should consult with financial advisors to build portfolios that align with their risk tolerances and goals.
