Market Recap
Today, the S&P 500 closed at 5,970, down 1.11%, while the NASDAQ and Dow Jones Industrial Average recorded modest declines of 1.49% and 0.77%, respectively. Over the past week, the S&P 500 rose 0.55%, the NASDAQ increased 0.43% to 19,722, the Dow Jones climbed 0.48% to 42,992, and the Russell 2000 advanced 0.25% to 2,444.
Santa Claus delivered big on Christmas Eve with the biggest rally in the past 50 years going back to 1974. More than 90% of stocks listed on the S&P posted gains. A historic month to remember with the Dow Jones Industrial Average suffering its longest losing streak in 50 years, falling for 11 consecutive trading sessions.
Early in the week, trading activity was subdued, typical for the holiday period. However, by Friday, a significant spike occurred in the VIX, rising 23% to 18.20, a move that caught many by surprise. Despite the volatility, the market appears positioned for a strong finish to 2024, with optimism about a potential Santa Claus rally still intact.
The U.S. economy is likely growing above 3%, with consumer spending strong heading into the holiday season. Geopolitically, tensions continue, with the U.S. reinforcing its support for Ukraine, and market participants remain vigilant regarding the ongoing risks in the semiconductor industry, particularly regarding U.S.-China relations. While geopolitical concerns are notable, they appear largely priced into the market at this point.
Crypto Recap
The crypto markets remain as turbulent as ever, with Bitcoin currently trading at $94,263, narrowly missing a return to the $100,000 milestone. Ethereum (ETH) ended the week around $3,334, while XRP closed at $2.15, both experiencing slight declines. Tether's USDT faces delisting from numerous EU exchanges starting December 30, as new crypto regulations come into effect.
Global Markets and Geopolitical Overview
The Santa Rally was at the center this week, with the STOXX Europe 600 Index rising 0.99% to close at 507.18. Germany’s DAX gained 0.69%, while France’s CAC 40 climbed 1.16%.
Volkswagen has reached a deal with the IG Metall trade union, averting plant closures in Germany. The agreement includes cutting more than 35,000 jobs across the country in a "socially responsible manner" by 2030 through early retirement and other programs, aiming to save approximately €15 billion. German Chancellor Olaf Scholz welcomed the announcement, calling it a "good, socially acceptable solution." The industry anticipates rising German car prices as profitability decreases. Volkswagen and other manufacturers are considering relocating the production of their most popular models to Mexico and other countries, primarily due to high energy costs in Germany.
The UK economy is grappling with a recession, failing to grow in the third quarter. Reports indicate zero growth between July and September. London’s FTSE 100 rose 0.95% this week to reach 8,149 points. Prime Minister Keir Starmer finds himself in hot water as the political crisis triggered by Liz Truss's October 2022 'mini-budget' resurfaces, fueling debates over the future of UK economic growth.
The Shanghai Composite Index closed slightly higher at 3,400, up 0.96% this week. Youth unemployment, weak domestic consumption, a looming U.S.-China trade war, and falling property prices remain key challenges. Following the invitation of Chinese Premier Xi Jinping to the January 6 presidential inauguration in Washington D.C.—marking the first foreign leader invited to such an event—we expect a softer stance on China. Our prediction is reinforced by Donald Trump urging the Supreme Court to delay the TikTok ban.
China’s industrial profits continued to decline for the fourth consecutive month in November, dropping by 7.3% compared to the same period last year. This marks an improvement from October’s 10% decrease and September’s 27.1% plunge, which was the steepest drop since March 2020. The sustained decline highlights the challenges facing Chinese industries, despite Beijing’s efforts to stimulate the economy. China’s overall economic trajectory suggests that meaningful improvement will depend on a rebound in consumer and business sentiment.
The Nikkei 225 Index gained 3.31% this week, ending at 40,281, nearly reaching its July high. The proposed alliance between Nissan, Honda, and Mitsubishi aims to address declining sales in the Japanese auto industry amid increasing competition from Chinese automakers. Both Nissan and Honda have confirmed they are in talks to form a joint holding company, while Mitsubishi is expected to decide on its participation by the end of January.
Our Articles From This Week
Economic Strength Meets VIX Spike: Buy the Dip?
We examine the market's response to Friday's VIX spike and discuss how, despite short-term volatility, the broader strength of the U.S. economy could make the current dip a buying opportunity. By analyzing key economic data and historical trends, we suggest the market has the potential to rally into the new year, with a positive outlook for the Santa Claus rally.
Betting on Apple: The AI Boom and Year-End Market Surge
Our analysis highlights Apple's position in the AI space, its market dominance, and its prospects for continued growth. With a strong track record and strategic positioning, we argue that Apple’s stock is well-positioned for a prosperous 2025. Long-term options present a compelling opportunity to capitalize on this anticipated growth.
Why Markets Are Poised for a Bullish Finish
We predicted that this year, the rally seems likely, supported by historical trends, collapsing volatility after Powell’s rate statement, and seasonal tailwinds. Low trading volumes enabled bullish moves to holiday optimism fueled by bonuses and spending.
Consumer Confidence and Year-End Market Opportunities
While consumer confidence missed expectations, the U.S. economy remains robust, with over 3% growth supported by resilient corporate earnings and improving consumer sentiment. We predict that this strength suggests the recent market dip could present a buying opportunity, consistent with historical patterns of year-end rallies.
What We’re Watching Next Week
Next week, we’ll continue to focus on the continuation of the Santa Claus rally, which traditionally sees positive returns for the last few trading days of December and the first few of January. While volatility is expected to remain, with Friday’s spike in the VIX being a key point of concern, we believe the overall strength of the U.S. economy and continued positive market sentiment will carry the rally forward.
Final Take
While the VIX spike on Friday created a brief period of uncertainty, we remain optimistic about the market’s ability to finish the year strong. The Santa Claus rally is still in play, supported by solid economic fundamentals and strong consumer confidence. Tech stocks, particularly those involved in semiconductors and AI, continue to be a focal point, and we expect these companies to lead the way into 2025.
