Market Minute
Weekly analysis from the FS Investments Research team
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December 23, 2024
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Equities
In a second consecutive challenging week, U.S. equities dropped -1.99% following a hawkish turn by the FOMC mid-week. Rate-sensitive sectors took the brunt of the pain, led by real estate and consumer durables. The Russell 2000 plunged following the Fed’s Wednesday announcement, at one point erasing all post-election gains before rebounding Friday. In Europe, the STOXX 600 and the DAX fell -2.74% and -2.55% respectively as a stronger dollar echoed through financial markets.
Fixed income
Interest rates were jolted higher on Wednesday following the FOMC meeting and press conference. The Fed adjusted its dot plot to include just two rate cuts in 2025, down from four in September, and cited in their economic forecast less concern about the labor market and more uncertainty around inflation. Chair Powell emphasized caution in his presser. The 10-year yield rose above 4.50% for the first time since late May, while the 2-year yield finished the week roughly unchanged. The Blomoberg Agg fell -0.69% and credit markets declined with stocks.
Commodities
Prices fell across the commodity complex as the U.S. dollar strengthened following a hawkish FOMC meeting. Crude prices remain sensitive to external factors given the poor setup for fundamentals heading into 2025. Gold and bitcoin each sold off, demonstrating the breadth of the damage caused by the Fed meeting. Weakness in China continues to hit copper prices, which now sit at their lowest in over four months.
Economic overview
It was a busy week for economic data even as the FOMC garnered the lion’s share of attention. Q3 GDP growth was revised to 3.1% from 2.8%, with consumption stronger than previously thought. Retail sales rose 0.7% m/m (cons. 0.6%), with autos driving much of the growth. Housing data were mixed, as construction starts remain sluggish but existing home sales surprised to the upside. Core PCE (the Fed’s preferred inflation gauge) rose just 0.1% m/m (cons. 0.2%), tempering the increase in rates following the FOMC meeting. Something to watch in 2025: base effects early in the year will be helpful, which will make year-over-year inflation appear to be dropping even if the monthly increased are elevated.
Source: Federal Reserve Bank of Atlanta, as of December 18, 2024.