Weekly market update on behalf of Bas Kooijman is the CEO and Asset Manager of DHF Capital S.A
16th December 2024
The past week saw mixed performance in U.S. stock markets, with most major indexes declining while the Nasdaq Composite hit a record high, surpassing the 20,000 mark for the first time. Large-cap stocks performed better than small-cap stocks, as evidenced by the Russell 2000 Index’s continued underperformance against the S&P 500. Growth stocks maintained their edge over value stocks for the third consecutive week, driven by strong gains in Tesla (+12.08%) and Alphabet (+8.44%).
Market momentum was notably volatile, with Monday marking the most significant drop in momentum-driven stocks in over a year. However, the market stabilized as the week progressed. Sector-wise, communication services and consumer discretionary stocks were the only segments to post gains, while most other sectors faced declines. Trading volume remained above the six-month average throughout the week, indicating sustained investor activity.
On the economic front, inflation data showed headline and core Consumer Price Index (CPI) both rising by 0.3% for November, aligning with expectations. On an annual basis, core inflation remained steady at 3.3%, while overall inflation edged up from 2.6% in October to 2.7% in November, driven by higher shelter costs. Producer price inflation also ticked up, moving from 0.3% to 0.4%.
Labor market data revealed a surprise increase in weekly jobless claims, reaching a two-month high of 242,000. Seasonal factors linked to Thanksgiving partly influenced this increase, but the rise in continuing claims suggests that job seekers are experiencing more difficulty finding employment.
These economic signals fueled expectations for a rate cut by the Federal Reserve at its upcoming meeting. Market forecasts now place a 97.1% likelihood of a rate cut, up from 86% the prior week. Yields on U.S. Treasuries rose, leading to negative returns on both Treasuries and investment-grade corporate bonds. High-yield bonds saw heightened trading volume following the CPI release, but the broader market sentiment turned negative as Treasury yields climbed.
The European stock market saw a week of mixed performance, with the STOXX Europe 600 Index falling 0.77%. Germany’s DAX posted a modest 0.10% gain, while Italy’s FTSE MIB rose 0.40%. In contrast, France’s CAC 40 and the UK’s FTSE 100 recorded slight declines of 0.23% and 0.10%, respectively.
Monetary policy developments were in focus, with the European Central Bank (ECB) cutting its key deposit rate by 0.25 percentage points to 3.0%. This marks the fourth rate reduction of the year. The ECB’s statement notably excluded prior language about maintaining “sufficiently restrictive” policy, indicating a possible shift toward a more flexible approach. Growth and inflation forecasts were also revised downward, reflecting a more cautious economic outlook.
Switzerland’s central bank delivered a larger-than-expected rate cut of 0.50 percentage points, its most significant cut since 2015. The move was aimed at controlling inflation and stabilizing consumer prices, with the inflation forecast for 2025 reduced to 0.3% from a previous 0.6% estimate.
In the UK, economic data revealed an unexpected 0.1% contraction in gross domestic product (GDP) for October, following a similar decline in September. Despite this, the three-month growth rate through October was a positive 0.1%, bolstered by the construction and services sectors. Political changes in France captured attention as well, with President Emmanuel Macron appointing former Justice Minister François Bayrou as prime minister, replacing Michel Barnier. This leadership shift could have broader implications for French economic and political policy in the coming months.
In Japan, stock markets posted modest gains, with the Nikkei 225 Index rising 0.97% and the broader TOPIX Index increasing 0.71%. Investor sentiment was bolstered by China’s announcement of additional fiscal measures and a slight easing of monetary policy. Speculation grew that the Bank of Japan (BoJ) may delay a rate hike until January 2025, shifting the timeline from December. This shift drove the yen to weaken against the U.S. dollar, moving to the JPY 153 range from the previous week’s 150.
The BoJ’s potential shift to a January rate hike was supported by the idea that the central bank would have the benefit of reviewing two additional inflation reports, the quarterly economic report, and insights from regional managers. Japan’s final GDP figures for the third quarter showed a 0.3% quarter-on-quarter increase, higher than the 0.2% consensus estimate. The BoJ’s quarterly tankan survey also showed improved sentiment among large manufacturers, indicating optimism about business conditions.
China’s equity markets, however, experienced declines. The Shanghai Composite Index fell 0.36%, and the CSI 300 declined 1.01%, while the Hang Seng Index in Hong Kong managed a 0.53% gain. Sentiment was dampened by underwhelming policy announcements from China’s Central Economic Work Conference. Officials pledged a more proactive fiscal policy and signaled an increased budget deficit for 2025 but failed to provide concrete details, leading to investor disappointment. China’s latest inflation figures revealed lingering deflationary pressure. The consumer price index (CPI) rose just 0.2% year over year in November, while core inflation edged up slightly to 0.3%.
Global markets faced a week of mixed results, with U.S. stocks showing divergence as the Nasdaq hit a record high while most other indexes declined, European markets reacting to central bank rate cuts and economic slowdowns, and Asian markets reflecting optimism in Japan but weakness in China due to underwhelming policy announcements.