“Good investors gather information, put that information into current and historical context, then make sound decisions.”
Any way you look at it, December has been rough for financial markets. Both equity and bond markets are markedly lower for the month, dampening results for the year. It is difficult to discern how much of the volatility may be attributed to the unwinding/rewinding of the Trump Trade, the Federal Reserve’s recent remarks about further interest rate cuts, or year-end tax-loss harvesting. Nonetheless, rather than charging across the finish line to punctuate a very good year, with just a few exceptions financial markets are limping home with what should close out as just a good year.
Equity markets were coming off a very strong November that capped a five-month rally, so there certainly was room to give. The selling in equities started slowly but steadily in December, with hardly a positive day to show. Then on December 18th the Federal Reserve released in their December post-meeting comments that they were not looking at being as aggressive at cutting short term interest rates as initially proposed in the future. That set off a maelstrom of selling that quickly took equity markets right into short-term correction territory.
This was unfamiliar territory for equities during the month of December, historically a positive month. But the sell programs hit hard on the Fed’s news, and the Dow Jones Industrial Average fell for the tenth straight day, this time down -2.58%, dropping 1,123 points. The S&P 500 Index (SPX) fell -2.95% and the NASDAQ Composite fell -3.56% that day. The next day the selling stopped, but it was only a few days before Christmas, and the way the weekends fell, there wasn’t enough time to stitch together a respectable rally. So the tax-loss harvesting continued, and markets stayed soft with that selling pressure. The SPX has averaged three corrections in a year since 1950. In 2024 the SPX had a -5.88% correction in April, and a sharper -9.99% correction in August. It didn’t look like there was going to be time to squeeze in one more correction before year’s-end. But here we are.
A quick look at the numbers for December-to-date and for the year tell the story. The S&P 500 Equal Weighted Index has dropped -5.49% MTD, but is up +13.94% YTD. The S&P Mid Cap 400 Index fell -6.64% MTD and is up +14.52% YTD. The S&P Small Cap 600 Index is down -7.47% in December and up +9.26% for the year. There were distinct bright spots in December as buying rotated back towards the AI-inspired themes. The S&P Information Technology Sector Index is up +3.22% MTD, and up +38.86% YTD. The S&P Telecommunication Services Sector Index is up +5.17% MTD, and up +41.99% YTD. The energy sectors have experienced the roughest December, with the S&P Composite Energy Sector Index down -10.51% MTD, and up +4.44% YTD.
Bond investors continue to be the most frustrated group in 2024. This was supposed to be a good year for bonds, with the promises of reduced inflation and lower interest rates, but inflation has proved to be a stickier problem than originally perceived.Bond market indexes are lower across the board for the month, with the exception of the Bloomberg 1-3 month T-Bill Index. Once again high yield corporate and high yield municipal bonds have outperformed high quality bonds for the month and for the year.
Closing thoughts on 2024 and December. U.S. Equity markets remain in a long-term Bull Market that is now only fifteen months old. Since 1950, the average Bull Market for equities has lasted for over sixty months. In spite of the national debt and a host of other problems, the U.S. stock market, bond market, and currency continue to be the strongest in the world, and where the world wants to invest. As for December, a wise man once said, the whole county fair wasn’t ruined just because it rained on the last day. See you next year!
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
© 2024 Edward D. Foy. [email protected], www.foyfinancial.com.
Sources: StockCharts, Morningstar, Stock Trader’s Almanac.