(Bloomberg) -- A rally in the world’s largest technology companies drove stocks to fresh all-time highs, with Wall Street traders bracing for a barrage of economic data and remarks from Federal Reserve speakers that will help shape the outlook for interest rates.
The S&P 500 notched its 54th closing record this year in a “narrow” advance that saw just a few groups ending higher. The tech-heavy Nasdaq 100 rose more than 1%, Tesla Inc. led gains in megacaps and Apple Inc. hit a fresh peak. Treasuries pared losses after Fed Governor Christopher Waller said he’s inclined to vote for a rate cut in December, with swaps pricing in more than 70% of a quarter-point reduction this month.
Even after the strongest rally since the early days of the dot-com boom, the S&P 500 still has room to push higher, according to JPMorgan Chase & Co.’s Andrew Tyler. He says the most popular options trades are wagering the benchmark will hit 6,200 to 6,300 this month. The gauge ended Monday just shy of 6,050.
The highlight this week will be Friday’s payrolls report, which is expected to show US hiring jumped in November after hurricanes and a major strike undercut job growth a month earlier. On Wednesday, Fed Chair Jerome Powell participates in a moderated discussion, and investors will await any assessment of the job market and inflation as well as clues to whether the central bank will lower rates in December.
“This week is the last truly important economic-data week of 2024,” said Tom Essaye at The Sevens Report. “If results are ‘Goldilocks,’ then investors will expect a soft landing and a December rate cut. That will keep positive seasonals in place for a year-end grind higher.”
The S&P 500 added 0.2%. The Nasdaq 100 rose 1.1%. The Dow Jones Industrial Average fell 0.3%.
Treasury 10-year yields advanced two basis points to 4.19%. The dollar snapped a three-day losing streak amid a currency warning to BRICS nations by President-elect Donald Trump. French bonds and stocks came under renewed pressure after Marine Le Pen pledged to topple Prime Minister Michel Barnier’s government after he failed to meet her demands on a new budget.
A year ago, equity investors and strategists braced for a potentially turbulent 2024, worrying about the risk of a hard landing for the US economy and rate cuts that could come too late to prevent it. Heading into the year, few anticipated that the S&P 500’s annual gain would be among the best in history.
“We now find ourselves in the middle of this ‘Goldilocks’ zone, where economic health supports earnings growth while remaining weak enough to justify potential Fed rate cuts,” said Mark Hackett at Nationwide. “December continues the seasonal tailwind, historically delivering the second-best performance behind November. Other technical tailwinds for the market include financial conditions, sentiment, momentum, and breadth.”
To Sam Stovall at CFRA, after the big November gains, investors still have much to look forward to.
Since World War II, he says the S&P 500 returns in December recorded: 1) the second highest average monthly return 2) the greatest frequency of advance and 3) the lowest standard deviation of returns, which during election years has been nearly 40% below the average for the 11 other months of the year.
“The trends in the equity market remain constructive,” said Craig Johnson at Piper Sandler. “We expect a continued broadening into SMID-caps, which should be a rising tide that lifts all boats.”
December seasonality is generally bullish, but there’s precedent for a pullback when the market is already up big through November of election years, according to Bespoke Investment Group.
“As the year winds down, investors should be thankful for the bounty of stock returns seen over the last two years. However, we believe the road ahead could look more challenging than most investors appear willing to recognize at the moment,” said Anthony Saglimbene at Ameriprise. “That said, we also believe the outlook for next year remains favorable despite the known risks, and stocks could grind higher if fundamental conditions stay on track.”
A more-selective stock approach, a realistic assessment of potential fiscal and monetary policy headwinds or tailwinds, and a well-balanced investment strategy could be the keys to navigating what is very likely to be an eventful 2025, he noted.
Seasonal trends in December favor equities in general, but heading into year-end/2025, it’s worth noting that positioning and sentiment are pushing toward extremes, while charts remain overbought against negative divergences in momentum, said Dan Wantrobski at Janney Montgomery Scott.
“The markets are priced to near-perfection, in our opinion, and this still renders them vulnerable to pullbacks as we move toward the first quarter of the new year,” he said. “Our outlook is for a correction within the magnitude of 10% to 15% to strike at some point during the first half of next year.”
Ed Clissold at Ned Davis Research says that when the S&P 500 has notched at least 50 record highs in a year, the next year the index has risen only two out of seven times, with a median loss of 6.2%.
“The fact that there have not been any breadth thrusts, or an extremely high percentage of stocks rallying together, since the election” suggests that the rally is not as broad as it was earlier in the year, he said. “Continued narrowing would set the stock market up for a tougher 2025.”
At Miller Tabak, Matt Maley says that there are indeed concerns about the level of euphoria in the marketplace as many sentiment indicators are reaching extreme levels.
“However, most investors seem to be thinking that this is not something to worry about until next year,” Maley noted. “As you might imagine, this kind of complacency tells us that a further rally into the end of the year is not a lock, but until we see signs that the market is actually starting to roll back over, it’s hard to raise any warning flags right now.”
Following a significant surge in volatility over the summer, Wall Street’s “fear gauge” — the VIX — has dropped below 14. The previous regime shift in expected volatility from above 20 to below 14 occurred in the fall of 2023 — leading to a 10% gain in the S&P 500 over the subsequent three months, according to Dean Christians at SentimenTrader.
“Whenever the VIX cycled from above 20 to below 14, the S&P 500 displayed excellent returns and consistency over medium and long-term horizons,” he said. “That was especially the case a year later, as the world’s most benchmarked index rose in all but one instance and exhibited significance compared to random returns over the study period.”
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This story was produced with the assistance of Bloomberg Automation.