- Market Recap: Despite lighter holiday-week trading volumes, major indices posted gains, with the Dow achieving its best Christmas Eve rally since 1974. However, technology stock profit-taking late last week tempered these gains.
- Rising Interest Rates: The 10-year Treasury yield hit its highest level since April at 4.63%. and threatening to finish at the highest levels of the year.
- Happy New Year. 2024 was a great year for investors. Wishing you and your family a happy and prosperous New Year in 2025!
Looking Back to Last Week
Last week’s markets experienced the expected holiday-week volatility due to lighter trading volumes. Despite this, the major indices — the Dow Jones Industrial Average, S&P 500, and NASDAQ — posted gains for the holiday-shortened week. Notably, the Dow had its best Christmas Eve rally since 1974. However, profit-taking in technology stocks on Friday tempered these gains.
Economic data was sparse and mostly underwhelming, with durable goods orders and new home sales falling short of expectations. Even so, fourth-quarter GDP remains on track for a solid 3.1% growth rate, highlighting resilience in the broader economy.
The most notable development was the continued rise in long-term interest rates, with the 10-year Treasury yield closing at 4.63% last week, its highest level since April. The 2024 peak of 4.74% is now within reach, and further upward movement could push longer-term rates to their highest levels of the year.
Looking Ahead to This Week
The stock market will operate for normal hours on Dec. 31 but will close on New Year’s Day, Jan. 1. It is another light week for economic data, as the closely watched employment report will not arrive until Jan. 10. Still, expect chatter about the “Santa Claus Rally,” which encompasses the last five trading days of the year and the first two days of the new year. Historically, these seven trading days average a 1.3% gain, compared to the typical seven-day return of 0.3%.
Thoughts on Interest Rates
The 10-year Treasury yield — arguably the world’s most important price — warrants attention. This yield serves as a benchmark for a wide range of borrowing costs, from mortgages to corporate loans, and reflects investor expectations about economic growth and inflation. Rising yields typically indicate optimism about economic expansion and higher inflation, but they also pose challenges for borrowers and asset valuations.
As we close the year with 10-year Treasury yields near their annual highs, several factors suggest rates could rise further in 2025. Core inflation remains elevated at 3%, with an upward trend since last summer. Even the Federal Reserve recently revised its 2025 inflation forecast from 2.2% to 2.5%. Additionally, the Bloomberg Economist Index aligns with this expectation. Thus, it seems there is a risk that inflation could be higher than the markets currently expect.
On the policy front, significant change looms as the Trump administration prepares to implement tax cuts, deregulation, and a leaner government. While these measures could stimulate growth and inflationary pressures, they may also introduce economic volatility and thus interest rate volatility as businesses adapt to the shifting landscape.
Final Thoughts
Bottom line: Stay invested, stay diversified, and stay disciplined. 2024 was a great year for investors in balanced, diversified portfolios. While challenges and uncertainties lie ahead, they always do, opportunities also remain for long-term investors. If you have any questions, feel free to reach out at strategists@brinkercapital.com or at rusty@orion.com. Wishing you and your family a happy and prosperous New Year. Thank you for your trust and partnership. We will be back next week with another update. Happy New Year!