Weekly Wrap

The stock market had a mixed week, which included the final sessions in 2024 and final sessions of the Santa Claus Rally period. The major indices lost steam at the end of the year after registering huge gains, but some rebound action kicked in at the end of the week. 

Small stocks outperformed their larger peers this week, leading the Russell 2000 to settle 1.1% higher. The S&P 500 and Nasdaq Composite each declined 0.5% for the week. The S&P surged 23.3% in 2024 and the Nasdaq Composite closed 28.6% higher for the year. 

This week's price action left the S&P 500 lower over the Santa Claus Rally period, which has been good for an average gain of 1.3% for the S&P 500 since 1950, according to The Stock Traders Almanac. It has been observed that significant downturns have occurred (but not always) in years when Santa didn't show. To that end, bear in mind that Santa didn't show last year and the S&P 500 went on to log a 23.3% price gain for 2024.

The S&P 500 also closed below its 50-day moving average, which pivoted from support to resistance on Monday. 

Only three S&P 500 sectors closed higher this week -- energy (+3.2%), real estate (+0.6%), and health care (+0.01%) -- while the materials (-2.1%), consumer discretionary (-1.5%), and consumer staples (-1.4%) sectors logged the largest declines. 

Volume was relatively light due to holiday-related closures this week. Several foreign markets were closed on Tuesday (or closed early) and remained closed Wednesday for the New Year's holiday. The U.S. markets were open for a full day on Tuesday and closed on Wednesday.

Monday: 

The stock market closed with losses, extending a broad retreat that started on Friday. The major indices closed above their session lows due to some technical movement after the S&P 500 dipped below its 50-day moving average (5,942), which initially drew in buy-the-dip interest. The key technical level pivoted from support to resistance, however, and the S&P 500 moved laterally below that level through the afternoon.

Turnaround action in NVIDIA (NVDA) also helped the major indices move off session lows.

The overall vibe remained negative through the entire session.

The downside bias was related to profit-taking after a strong year and some hesitation in front of the New Year's holiday closures. Several foreign markets are closed on Tuesday (or closing early) for the New Year's holiday. U.S. markets are open for a full day of trading on Tuesday, but will be closed Wednesday.

Reviewing Monday's economic data:

• December Chicago PMI 36.9 (Briefing.com consensus 42.7); Prior 40.1
• November Pending Home Sales 2.2% (Briefing.com consensus 0.9%); Prior was revised to 1.8% from 2.0%

Tuesday:

The stock market closed with losses at the index level on the final session of the year. The Nasdaq Composite, which surged 28.6% in 2024, logged a 0.9% decline compared to yesterday's close. The S&P 500 fell 0.4% and the Dow Jones Industrial declined 0.1% while the Russell 2000 outperformed, settling 0.1% higher.

The market was in rally-mode at the open following recent declines, but buying interest faded as the 10-yr yield moved higher.

Losses the mega cap space related to profit-taking activity also contributed to weakness at the index level.

Reviewing Tuesday's economic data:

• October FHFA Housing Price Index 0.4%; Prior 0.7%
• October S&P Case-Shiller Home Price Index 4.2% (Briefing.com consensus 4.2%); Prior 4.6%

Thursday:

The stock market experienced some turbulence on the first session of the year. The major indices initially moved higher, bolstered by buy-the-dip trading after a soft close to 2024 and some rebalancing activity at the start of the year. Rising rates and mega cap losses drove the major indices lower around mid-day, though. The stock market ultimately closed off session lows and losses weren't very pronounced.

Apple (AAPL) and Tesla (TSLA) extended early declines as the major indices moved to session lows. Apple shares reacted to some cautious comments on iPhone demand from the analyst at UBS. Tesla's weakness followed its Q4 deliveries report, which put a cap on the company's first annual decline in deliveries.

Losses in the aforementioned names contributed to losses in their respective S&P 500 sectors.

Treasuries settled with losses, which contributed to the downside bias in equity indices.

The ongoing strength in the dollar, which can be a drag on earnings for multinational companies, was another contributing factor in the downside bias.

Reviewing Thursday's economic data:

• Initial jobless claims for the week ending December 28 decreased by 9,000 to 211,000 (Briefing.com consensus 224,000) while continuing jobless claims for the week ending December 21 decreased by 52,000 to 1.844 million.
  • The key takeaway from the report is the low level of initial claims -- a leading indicator -- as that connotes a situation where employers are reluctant to let employees go, which goes hand-in-hand with an optimistic view of business prospects.
• Total construction spending was unchanged month-over-month in November (Briefing.com consensus 0.2%) following an upwardly revised 0.5% increase (from 0.4%) in October. Total private construction was up 0.1% month-over-month while total public construction declined 0.1% month-over-month. On a year-over-year basis, total construction spending was up 3.0%.
  • The key takeaway from the report is that there wasn't much impulse for construction spending in November, particularly on the nonresidential side of things.
• December S&P Global US Manufacturing PMI - Final checked in at 49.4 versus the preliminary reading of 48.3 and the final November reading of 49.7. The dividing line between expansion and contraction is 50.0, so the December PMI represents activity contracting at a slightly faster pace than the prior month.
• The MBA Mortgage Applications Index was down 21.9% from two weeks before with refinance applications down 36% and purchase applications down 13% (note: this data is usually released on a weekly basis, so the actuals, which aren't necessarily good, also aren't as bad as they appear at first blush)

Friday:

The stock market was in rally-mode, benefitting from buy-the-dip interest after recent declines. The S&P 500 closed 1.3% higher than Thursday, but was 0.5% lower since the start of the Santa Claus rally period (last five trading sessions of the year and first two of the new year). The index settled just below its 50-day moving average (5,944).

Gains were broad based. Market breadth favored decliners by a roughly 3-to-1 margin at the NYSE and at the Nasdaq. 24 of the 30 Dow components registered gains and all 11 S&P 500 sectors closed higher.

Mega cap names outperformed the broader equity market, boosting index performance.

Reviewing Friday's economic data:

• The December ISM Manufacturing Index checked in at 49.3% (Briefing.com consensus 48.5%) versus 48.4% in November. The dividing line between expansion and contraction is 50.0%, so the December reading suggests manufacturing sector activity contracted versus the prior month but at a slower pace. This was the ninth straight month (and 25th out of 26) that economic activity in the manufacturing sector contracted.
  • The key takeaway from the report is that manufacturing sector activity overall continued in a state of contraction, although the pace of contraction slowed at the same time the prices index picked up.
• EIA Natural Gas Inventories -116 bcf (prior -93 bcf)