Market Recap
Markets on Edge. US stock markets saw their most significant weekly decline since mid-November, triggered by the Federal Reserve’s cautious outlook on interest rate cuts for the coming year. This announcement also prompted a second consecutive week of Treasury sell-offs.
Despite a Friday rebound in the S&P 500 and Nasdaq 100, which reduced overall weekly losses, the week remained negative. The Bloomberg dollar index experienced its largest drop this month, yet still ended higher for the third consecutive week. While Treasury yields declined across the board on Friday, the 10-year yield rose more than 10 basis points over the week.
Shifting Sentiment Amid Fed Forecasts
The Federal Reserve’s revised forecast earlier in the week, which scaled back the expected number of rate cuts in 2025, was a key driver of market volatility. This change was underpinned by robust economic data. Fed Chair Jerome Powell emphasized inflation control, a stance supported by subdued personal consumption expenditures data for November. Released Friday, the data suggested the economy is moderating despite its overall resilience.
Weekly Market Performance
For the week, the S&P 500 slipped –1.99%, the Dow Jones Industrial Average dropped –2.25%, and the Nasdaq Composite fell -1.78%.
Friday’s Closing Levels
| Index | Close | Change | % Change |
|---|---|---|---|
| Dow Jones | 42,840.26 | +498.02 | +1.18% |
| S&P 500 | 5,930.85 | +63.77 | +1.09% |
| Nasdaq | 19,572.60 | +199.83 | +1.03% |
| US 10-Year | 4.522% | ||
| VIX | 18.36 | -5.73 | -23.79% |
Year-End Volatility Looms
Last week marked the final full trading week of the year, offering a reminder that markets are anything but predictable. As Friday’s rally showed, dip buyers returned in force but couldn’t maintain gains at the close, possibly due to the record triple-witching options expiry.
Looking ahead, the upcoming holiday-shortened week could bring heightened volatility due to reduced trading volumes. Investors will closely monitor whether markets can stay above last week’s lows. A sideways or upward movement may indicate a near-term bottom. However, as last week demonstrated, things can turn ugly quickly.
The sell-off earlier in the week was partly fueled by the liquidation of leveraged positions, highlighting the risks in a highly leveraged market. Should the lows break, a deeper correction may unfold as the year ends.
Investor Outlook
As we approach the final trading days of 2024, traders should brace for potential volatility while remaining vigilant. Maintaining a focus on market resilience above key levels will be critical.
Holiday Greetings
I want to take this opportunity to wish everyone a Blessed Christmas and a Happy New Year!
Source: CBOE, Bloomberg
This commentary was written by James Gomes, a seasoned finance professional with over 30 years of industry experience, including a tenure exceeding 20 years at a prominent US bank.
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Disclaimer
This information contained in this blog is for general reference only and is not intended as investment advice, a recommendation, an offer, or an invitation to buy or sell any financial instruments. It does not consider any specific recipient’s investment objectives or financial situation. Past performance references are not reliable indicators of future performance. Doo Prime and its affiliates make no representations or warranties about the accuracy or completeness of this information and accept no liability for any losses or damages resulting from its use or from any investments made based on it.
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