Two Years in a Row With Gains Over 20%: Dec. 31, 2024

Stocks are ending 2024 on a high note as equities recover from yesterday’s losses. But investors are taking this bull market’s endurance into account, especially following two consecutive years of returns exceeding 20%. There is indeed reason for caution, since 2025 will feature a fresh political backdrop as President Trump and his crew set up shop in the District of Columbia. Meanwhile, the health of the European and Chinese economies is top of mind, with market participants concerned that protectionist policies may derail activity in those regions. Thankfully for Beijing, however, PMIs reflected modest growth in December, but it was mostly services, as manufacturing barely hung on. But unfortunately, the US Treasury says it was attacked by a state-sponsored hacker sent from Beijing, a development that Chinese government officials are labelling as a smear effort by Washington.

China Manufacturing Barely Hangs On

China’s struggling manufacturing sector weakened slightly this month but remained barely within the expansion mode while the services category strengthened, according to the country’s Purchasing Managers’ indices. Manufacturing dipped from 50.3 in November to 50.1, missing the analyst consensus forecast for an unchanged result. A reading above 50 implies expansion. Conversely, the non-manufacturing benchmark climbed from 50.0 to 52.2. Analysts forecasted a result of 50.2. On an encouraging note, 17 industries among 21 within the PMI recorded stronger results than last month. Aviation, transportation and telecommunications were some of the strongest categories while the construction industry moved back into expansion.

South Korea Inflation Worse Than Expected

South Korea’s heavy dependence on imported food and energy combined with its plunging currency contributed to month-over-month (m/m) and year-over-year (y/y) price pressures growing 0.4% and 1.9% this month compared to analyst expectations for 0.2% and 1.7%. The m/m inflation rate was a reversal from the preceding month’s 0.3% rate of deflation while the y/y result was up from the last print of 1.5%. When excluding food and energy, inflation climbed 0.1% m/m and 1.8% y/y while November recorded no m/m change but a 1.9% y/y gain.

The food and non-alcoholic beverages category and the furnishings, household equipment and routine maintenance group led with m/m increases of 1.9% and 0.7%. Transport and the recreation and culture categories were also among price gain leaders with increases of 0.6% and 0.5% while restaurant and hotel costs climbed 0.3%. The miscellaneous goods and services classification experienced the largest rate of deflation at 0.4% while cocktail hour became less expensive—the alcoholic beverage and tobacco category fell 0.2%. South Korea’s currency has been in a free fall with its former president and current leader both facing impeachment charges.

Dallas Fed Gauge Produces Mixed Results

The Dallas Fed Services Index for December sank from 9.8 to 9.6 this month while the bank’s Services Revenues Index strengthened from 10.9 to 13.8. For the latter index, the score was the highest level since August 2023.

Market Rally Resumes

Markets are tilted bullishly with investors scooping up stocks and fixed-income instruments alike. All eleven sectors and major, domestic equity benchmarks are gaining with the Russell 2000, Dow Jones Industrial, S&P 500 and Nasdaq 100 indices up 0.6%, 0.4%, 0.2% and 0.1%. Sectoral participation is being led by energy, real estate and materials; they’re up 1%, 0.6% and 0.6%. Treasurys are catching bids as well with the 2- and 10-year maturities changing hands at 4.22% and 4.52%, 2 basis points (bps) lighter across both notes. Despite softer yields, the greenback is up against all of its major peers, including the euro, pound sterling, franc, yen, yuan and Aussie and Canadian tenders. The Dollar Index is up 20 bps and trading near its strongest level in 25 months. Commodities are mixed with crude oil, gold and silver up 0.7%, 0.3% and 0.1% but lumber and copper are lower by 1.6% and 1.4%.

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