Weekly Market Performance — January 3, 2025

With additional content provided by Brian Booe, Associate Analyst, Research.‍‍‍

LPL Research provides its Weekly Market Performance for the week of December 30, 2024. Stocks locked in a stellar year on Tuesday, although the brief slide to end 2024 shaved annual returns just a touch. Returns for the abbreviated week were below the flatline after stocks snapped a five-day losing streak on Friday, erasing a slight decline in the first session of 2025. European stocks edged into positive territory, while Asian equities slipped on economic concerns in China and South Korean political turmoil. Treasury yields ended lower after the recent backup in yields, while crude oil and gold advanced.‍‍‍

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 01/03/25 @2:50 p.m. ET
Disclosures: Indexes are unmanaged and cannot be invested in directly.‍‍‍‍‍‍‍

U.S. and International Equities

U.S. Equities: Despite capping an outstanding year on Tuesday, weekly trading was choppy as stocks struggled to gain positive traction during the holiday-shortened week. The S&P 500 ended the week 0.5% lower, the tech-heavy Nasdaq shed 0.6%, and the Dow Jones Industrial Average closed 0.7% below the flatline. Value outperformed growth stocks, while small caps ended 0.7% higher.  ‍‍‍

Stocks ended 2024 on a sour note in an otherwise outstanding year for U.S. investors. Over the final four sessions of the year, from December 26 to New Year’s Eve, the S&P 500 declined just over 2.5%, taking some of the shine off annual returns for the year. Nonetheless, the S&P 500 sealed a 25% return, while the Nasdaq rallied 29.6%, and the Dow finished the year up 15%, including dividends. The benchmark S&P 500 was propelled to the second consecutive year of +20% returns for the first time since 1998 by the so-called Magnificent Seven and big tech names, setting 57 all-time highs along the way.  ‍‍‍

Markets remained relatively quiet following the New Year’s Day holiday, erasing early gains before closing slightly below the flatline in the first session of 2025. This marked a five-day losing streak for the S&P 500 and Nasdaq, however, stocks persevered on Friday to secure the first positive close of the New Year. The broader market narrative remained unchanged to start January, with corporate news from index heavy weights driving the market. Among corporate highlights, electric vehicle giant Tesla (TSLA) missed fourth quarter vehicle delivery estimates and annual sales declined for the first time in years. Plus, Apple (AAPL) announced a four-day discount on iPhones in China, and President Biden blocked the potential merger between US Steel (X) and Japan’s Nippon Steel. ‍‍‍

International Equities: Across the pond, European equities were able to eke out a slight gain for the week after erasing early declines. The risk off tone across the region was credited to ongoing tariff uncertainty from the incoming U.S. administration with less than a month before Inauguration Day, and the latest remarks from European Central Bank (ECB) officials. Despite a rocky growth outlook for Germany and France, hawkish ECB members stated that the central bank could delay its next rate cut due to a recent increase in inflation above the ECB’s target rate. For 2024, the European benchmark STOXX 600 added a solid 9.7%, including dividends.  ‍‍‍

Asian stocks ended the week in the red, weighed down by continued economic uncertainty in China and read-throughs on weak trading sessions on Wall Street. Hong Kong and mainland China fell sharply over the last five days after lackluster manufacturing data re-ignited lingering concerns around the struggling economy. Steep declines on January 2 marked the worst yearly start for Greater China in nine years. South Korea closed lower in a three-day week as political turmoil continued to act as a headwind for markets. While markets were closed on New Year’s Eve, an arrest warrant was issued for the now-impeached President Yoon, who evaded detention following a five-hour standoff between police and presidential security at the presidential residence on Friday. For 2024, the broader Asia-Pacific region logged a solid advance. ‍‍‍

Fixed Income, Currency, and Commodity Markets

Fixed Income: The Bloomberg U.S. Aggregate Index (Agg) traded slightly higher on the week after Treasury yields faced a notable decline on Monday. The 10-year Treasury yield ended the week four basis points lower (0.04%), while the rate sensitive two-year yield declined six basis points since Monday (0.06%).  ‍‍‍

The Agg ended 2024 1.8% higher on a total return basis. Investors should reasonably expect to receive coupon income each year (which they did) but that was largely offset by the move higher in interest rates. Last year ended up being a volatile year for interest rates with the 10-year trading within a 3.62–4.71% range and the 2-year trading between 3.50–5.04%. Ever-evolving Federal Reserve (Fed) rate cut expectations were the primary driver of volatility with budget deficits and supply concerns also causing elevated rate moves. Unfortunately, 2025 may be another year of elevated rate volatility for largely the same reasons as we saw in 2024.  ‍‍‍

Although, the good news is abundant opportunities to buy bonds to harvest income remain. In a volatile interest rate environment, the certainty that comes along with buying bonds and holding to maturity can help alleviate the behavioral aspects of mark-to-market volatility. And despite the recent steepening on the yield curve, the belly of the Treasury yield curve remains an attractive opportunity set, that even if interest rates continue to move higher, potentially provide positive returns; 2-year and 5-year Treasury securities offer attractive risk/reward opportunities under most circumstances. For 2-year Treasuries to incur a mark-to-market loss over the next 12-months, the 2-year yield would need to jump to 8.8% — more than double the current rate — whereas the 5-year rate would need to move to 5.6%. ‍‍‍

Commodities and Currencies: The Bloomberg Commodities Index traded modestly higher this week. West Texas Intermediate (WTI) crude advanced 4.8% on the week, finding strong support after the turn of the calendar as U.S. crude oil inventories fell for the sixth straight week. Plus, continued optimism around Chinese economic stimulus potentially supporting demand in 2025 also acted as a tailwind. Gold ended the week 0.8% higher after capping the yellow metal’s best year since 2010 on Tuesday. On a weekly basis, the bullion trimmed gains during Friday’s session after December manufacturing data improved, but remained in contraction, heeding hawkish Fed expectations. Silver and copper diverged this week, with silver delivering a solid weekly gain while copper declined. The dollar strengthened, receiving a boost from low initial unemployment claims, before steadying on Friday as stocks recovered from a five-day losing streak, reducing liquidity demand for the greenback.‍

Economic Weekly Roundup

ISM Employment Index Dipped in December. Business leaders in the manufacturing sector reported weaker hiring activity. The headline diffusion index rose in December but remains in contraction. Purchasing managers — those with boots on the ground — reported another increase in prices paid, a sign of nagging inflation pressures for those in the manufacturing sector. A rebound in new orders drove most of the increase in the headline index. Businesses likely pulled forward demand given the uncertainty around the future trade environment. Employment contracted for the 7th consecutive month as the labor market continued to cool. ‍‍‍

The manufacturing job market continues to cool and is likely a signal of broader weakening in hiring activity. Investors should expect next week’s payroll report to show sub-200k gains. Further, new orders spiked in December as firms pulled forward demand in anticipation of imminent tariffs. Rising new orders hint at solid growth in corporate capital expenditures and a driver of GDP growth in 2025.  ‍‍‍

Dollar Supported by Low Claims. Another week of low initial unemployment claims convinced markets to keep bidding up the U.S. dollar. Initial unemployment claims fell to 211,000 last week, down to an eight-month low. Low initial claims will suppress probabilities of several rate cuts from the Fed this new year. In contrast, the ECB is expected to cut more aggressively based in part on the weak growth outlook for Germany and France. The euro fell to $1.03 Thursday morning following U.S. claims data, the weakest since November 2022, as major central bank plans diverge. The official unemployment rate appears to be range-bound and likely unchanged at 4.2% in December. Investors will receive the latest nonfarm payroll report next Friday. ‍‍‍

A stable job market will squelch the Fed’s appetite for cutting rates aggressively amid nagging services inflation. Investors should expect the U.S. dollar to remain strong against the euro as Europe and U.S. monetary policies diverge. ‍‍‍

The Week Ahead

The following economic data is slated for the week ahead:    ‍‍‍

• Monday: S&P Global U.S. Purchasing Managers’ Index (December final), Factory Orders (Nov), Durable Goods Orders (Nov final), Capital Goods Orders & Shipments Nondefense ex Aircraft (Nov final) 
• Tuesday: Trade Balance (Nov), JOLTS Jobs Report (Nov), ISM Services Index (Dec) 
• Wednesday: MBA Mortgage Applications (Jan 3), ADP Employment Change (Dec), FOMC Meeting Minutes (Dec 18), Consumer Credit (Nov) 
• Thursday: Challenger Job Cuts (Dec), Initial Jobless Claims (Jan 4), Continuing Claims (Dec 28), Wholesale Trade Sales (Nov), Wholesale Inventories (Nov final) 
• Friday: Average Hourly Earnings (Dec), Underemployment Rate (Dec), Labor Force Participation Rate (Dec), Change in Manufacturing Payrolls (Dec), Change in Nonfarm Payrolls (Dec), Unemployment Rate (Dec), Change in Private Payrolls (Dec), Average Weekly Hours All Employees (Dec), University of Michigan Consumer Sentiment Report (Jan preliminary)