ETF Insights| December 1, 2024 | S&P 500
Price Action & Performance
Equity Market Performance: November saw a strong performance for U.S. equities, with the S&P 500 marking its best month since November 2023, buoyed by solid earnings reports, resilient macroeconomic trends, and expectations for further rate cuts. Cyclicals, small caps, semiconductors, and retail outperformed, reflecting optimism in consumer resilience and economic momentum. Big tech was mixed, with sector rotation favoring value and rate-sensitive names. The Russell 2000 also posted robust gains, benefiting from the Trump-driven narrative favoring small-cap and domestic growth themes.
At the sector level, Discretionary, Financials and Energy Sectors were leadership with Healthcare, Materials and Technology representing the bottom-3 performers for the month. YTD, Financials, Comm. Services and Utilities have paced the market while the other 8 sectors have lagged.
December Outlook for U.S. Equities
December is historically a favorable month for equities, and this year appears no exception. Seasonal factors, including systematic fund flows, are expected to provide support. Earnings growth remains robust, with strong results anticipated in key sectors like semiconductors, financials, and retail. Disinflationary trends and expectations for a December rate cut from the Federal Reserve offer additional tailwinds. Meanwhile, the broader macroeconomic backdrop—characterized by resilient consumer spending, a stable labor market, and easing inflation concerns—underpins optimism.
However, risks remain. Tariff uncertainty could disrupt global growth and inflation expectations, particularly if hardline trade policies materialize. The Federal Reserve’s recent communications have leaned slightly hawkish, emphasizing a data-dependent approach that could temper expectations for aggressive easing. Geopolitical risks, including escalating tensions in Ukraine and potential fallout from U.S.-China trade policies, add to the downside risks. Furthermore, with equity valuations elevated, any negative surprises in economic data or corporate earnings could trigger a market correction.
Economic and Policy Drivers
The transition to the Trump administration has generated optimism among investors, particularly following the nomination of Scott Bessent as Treasury Secretary. His market-friendly stance, combined with anticipated economic policies such as tax cuts and deregulation, has bolstered confidence. However, tariff concerns remain a key risk, with President Trump maintaining hardline rhetoric on trade negotiations with China, Mexico, and Canada. Markets are hopeful that this rhetoric may be a negotiating tactic, but uncertainty lingers.
Economic resilience has also fueled sentiment, with positive data surprises and steady disinflation reinforcing expectations for a December rate cut. Core PCE inflation remains subdued, providing room for monetary easing, while consumer confidence improved in November. Earnings momentum has been another key driver, with S&P 500 Q4 earnings expected to grow by ~12% year-over-year, supported by strong performance in sectors such as semiconductors, financials, and retail.
Geopolitical developments remain mixed. A ceasefire between Israel and Hezbollah provided some relief in the Middle East, raising hopes for broader regional stability. However, tensions with Russia over Ukraine and trade disputes with China continue to act as key overhangs. These geopolitical risks, coupled with domestic policy uncertainties, remain potential headwinds for equities.
Macroeconomic Data:
Inflation trends have remained steady, with Core PCE rising 0.3% month-over-month in October and holding at 2.8% year-over-year. While disinflationary momentum persists, tariff risks could pose challenges to progress. Consumer spending and income data also highlight a robust backdrop, with October personal income growing 0.6%—well above expectations—and spending increasing 0.4%. However, labor market trends are mixed; while initial jobless claims remain steady at 213K, continuing claims are near a three-year high, raising concerns about broader employment conditions. The housing market showed softness, with new home sales dropping 17.3% month-over-month in October, reflecting weakening demand despite easing mortgage rates.
Policy Updates:
The Federal Reserve’s November FOMC minutes emphasized a gradual approach to rate reductions, aligning with market expectations for a potential December rate cut. On the fiscal side, Trump’s economic agenda—including tax reforms, deregulation, and infrastructure spending—is expected to provide fiscal tailwinds. However, proposed tariffs on trade partners such as Mexico, Canada, and China continue to pose risks. Trade negotiations with Mexico and Canada have shown signs of progress, potentially easing tariff concerns, though tensions with China over trade policies and export controls remain unresolved.
Sector-Specific Impacts:
In technology, regulatory risks and slowing growth among large-cap tech firms, such as Dell, CrowdStrike, and HP, remain headwinds. However, demand for AI-related technologies continues to support semiconductor companies.
The retail sector faces mixed prospects for holiday sales, as consumers increasingly seek value. While traditional brick-and-mortar stores face challenges, e-commerce players like Amazon are well-positioned to benefit from robust online sales growth.
In the energy sector, lower oil prices and easing geopolitical risks may pressure exploration and production companies, though domestic policy support remains a long-term positive.
Financials have been buoyed by strong economic data and potential regulatory easing, including the expected lifting of Wells Fargo’s asset cap. However, higher-for-longer interest rates could pressure margins for some financial institutions.
In Conclusion
We expect the strong bull trend to carry stocks higher into year-end. With 2024 now 11-months old, we are in a very strong year for equity performance. For that reason alone we can’t be surprised at any potential correction. But for the time being, our indicators are stable with improving market internals and a strong trend for US equities. Interest rates could become a problem, but in the near-term they too are consolidating. We are positioned for a continued bull market entering December.
Chart | S&P 500 Technicals
S&P 500 12-month, daily price (200-day m.a.|14-day RSI|12, 26, 9 MACD)
- Our current price target for the S&P 500 is a technically derived 6140-6220 projection based off the resolution of long-term and near-term base break-outs shown on the chart above.
Sector SPDR Relative Performance to S&P 500 | 3-month
- Relative Performance is firmly on a bullish footing over the past 3-months, we continue to give the benefit of the doubt to the Technology Sector while shorting low vol. and commodities exposures.
