1. Markets Navigate Through Turbulent Waters
The final weeks of 2024 brought significant volatility to financial markets, with U.S. stocks experiencing their most challenging period in months. The major indexes fell approximately 2% overall, despite a Friday recovery rally that helped offset a particularly sharp Wednesday decline. Most notably, the Dow Jones Industrial Average marked a dubious milestone by recording its longest losing streak in nearly 50 years, declining for ten consecutive trading days and shedding 6.0% of its value before the streak finally broke on Thursday.
Key Takeaway: Market resilience is being tested as year-end approaches, with significant technical damage despite partial recovery.
2. Federal Reserve Shifts to More Hawkish Stance
The Federal Reserve delivered a widely anticipated quarter-point rate cut but surprised markets with a more hawkish outlook for 2025. The central bank now projects only two rate cuts for the coming year, a significant reduction from previous expectations of approximately four cuts. This announcement triggered a substantial market reaction, with major U.S. indexes dropping 3-4% in response to the adjusted forecast.
Key Takeaway: The Fed's more conservative approach to rate cuts suggests a longer period of higher rates than markets had anticipated.
3. Bond Market Turbulence Intensifies
The bond market experienced its second consecutive week of significant pressure, pushing yields to multi-month highs. The benchmark 10-year U.S. Treasury yield reached 4.59% on Thursday, its highest level since May, before settling at 4.53% by Friday's close. This marks a dramatic shift from the September low of 3.62%, reflecting changing expectations about the Fed's monetary policy path.
Key Takeaway: The bond market is repricing risk in response to the Fed's hawkish pivot, creating ripple effects across asset classes.
4. Volatility Metrics Surge on Fed Decision
Market uncertainty spiked dramatically following the Federal Reserve's announcement, with the Cboe Volatility Index (VIX) surging approximately 74% on Wednesday alone. The index jumped from 15.9 to 27.7 in a single session, though it later moderated to 18.4 by Friday's close. This surge represents one of the largest single-day increases in the "fear gauge" this year.
Key Takeaway: The sharp volatility spike indicates significant market repricing of risk following the Fed's policy shift.
5. Economic Growth Exceeds Expectations
In a bright spot for markets, third-quarter GDP growth was revised upward to an annual rate of 3.1%, surpassing both the initial estimate of 2.8% and the second quarter's 3.0% growth. This marks the eighth time in nine quarters that GDP growth has exceeded 2.0%, demonstrating remarkable economic resilience despite higher interest rates.
Key Takeaway: The U.S. economy continues to show robust growth despite monetary tightening.
6. Dollar Strength Returns
The U.S. dollar capitalized on the Fed's hawkish stance, climbing to its highest level against major currencies since November 2022. The more than 1% surge reflects the widening interest rate differential expectations between the U.S. and other major economies.
Key Takeaway: Dollar strength could present headwinds for U.S. multinational corporations and emerging markets.
7. Light Calendar Ahead
The final week of 2024 brings a lighter economic calendar, with key releases including consumer confidence on Monday and new home sales and durable goods orders on Tuesday. The following week will close out the year with pending home sales and home price data.
Key Takeaway: Year-end trading could see increased volatility due to lower liquidity despite the light economic calendar.
Looking ahead to next week, market participants will be closely monitoring the final economic data points of 2024, particularly focusing on consumer confidence and housing market indicators. These releases could provide important signals about economic momentum heading into 2025.
