The Weekly Wire: Tough Week with Glimmers of Hope

• Markets React Sharply: The Fed’s hawkish tone last week on inflation and reduced rate cut expectations for 2025 drove sharp market declines, including the Dow’s first 10-day losing streak since 1974.
   
• Economic Data Provides Optimism: Stronger than expected retail sales and GDP growth and particularly the lower-than-expected inflation report highlights resilience in the economy despite the market volatility.
   
• Short Week: Early close Tuesday with the market reopening Thursday suggests light trading volumes this holiday week, but also the potential for volatility.

Looking Back to Last Week - Markets

Thanks to a strong rally on Friday following a better-than-expected inflation report, the U.S. stock market snapped some notable losing streaks and pared weekly losses. Over the weekend, Congress passed a stopgap funding bill, and the President signed it, averting a government shutdown. This was a welcome dose of good news after what had been a tough stretch.

Heading into last Wednesday’s Federal Reserve meeting, the markets already carried a negative bias. The Fed’s updated guidance, emphasizing renewed inflation concerns and fewer rate cuts anticipated in 2025, triggered a sharp reaction. The Dow Jones Industrial Average sank 1,100 points, marking its first 10-day losing streak since 1974. The market also posted its worst performance ever on a scheduled FOMC decision day—though that comparison only dates back to 1994.

For the week, major U.S. stock indices declined about 2%, while international benchmarks fell over 3%. Longer-term interest rates rose, with the 10-year Treasury yield climbing from under 4.4% to over 4.5%.
 

Looking Back to Last Week - Economy

Interestingly, these market moves occurred amid mostly positive economic data. Retail sales kicked off the holiday shopping season stronger than expected, fueled by record-breaking Black Friday and Cyber Monday spending. Third-quarter GDP was revised up to 3.1% from 2.8%, while existing home sales rose 6% year over year. However, the standout was the PCE inflation report, which showed core inflation at 2.8%, lower than expected and a key driver of Friday’s market rebound. While market reactions to the Fed’s commentary were sharp, cooling inflation and strong retail sales offer reasons for optimism as we close out the year.

Looking Ahead This Week

This week will be quiet on the economic front, with durable goods orders and new home sales set to release Monday. Markets close early on Tuesday and reopen Thursday, with light trading volumes expected due to the holidays. This could amplify volatility, as investors focus on year-end rebalancing, tax-loss harvesting, and preparing portfolios for year-end reports.

As we head into 2024, staying invested, diversified, and disciplined will be critical as ever. Remember markets move on surprises, and preparation beats prediction every time.
 

Add it all up, stay invested, stay diversified, and stay disciplined.  If you have any questions or comments, please let us know at strategists@brinkercapital.com or at rusty@orion.com. Wishing you and your family a happy, healthy holiday season. Thank you for your time, trust, and partnership. We will be back next week with another update. Happy Holidays!

Key Data

Stocks, Bonds, Alternatives, and Real Assets as of December 20, 2024

Source: Morningstar

The TV Benchmark represents an average of the S&P 500, Dow Jones IA, and NASDAQ 100 return indexes. The Orion Risk Score represents risk relative to the global equity market.

Interest Rates as of December 20, 2024

Sources: Yahoo Finance, S&P Global, Crane Data, BankRate

Key Economic Data Last Week

Source: MarketWatch,  First Trust

Key Economic Data This Week

Source: MarketWatch