Next Week's Highlights: Fed's Rate Cut Uncertainty and 'Santa Claus Rally' Awaited Next Week

Due to the shifting outlook for the Federal Reserve's interest rate cut, the U.S. stock market experienced a sharp sell-off this week.

 

Although it rebounded significantly on Friday, the three major indexes still logged losses for the week. The Dow Jones Industrial Average declined by 2.25% overall, the S&P 500 Index dropped by 1.99%, and the Nasdaq Composite Index fell by 1.78%.

 

On Wednesday, the Federal Reserve announced a 25-basis-point cut in interest rates, aligning with market expectations. However, policymakers now anticipate only two interest rate cuts in 2025, a notable decrease from the four cuts projected in September.

 

Following the Federal Reserve's public indication of a slowdown in interest rate cuts, the U.S. stock market experienced a significant decline, raising doubts about the traditional "Santa Claus Rally" for this year.

 

According to data from the "Stock Trader's Almanac," since 1969, the period encompassing the last five trading days of each year along with the first two trading days of the new year has typically seen the S&P 500 Index rise by an average of 1.3%. This period is commonly referred to as the "Santa Claus Rally."

 

Additionally, signs of weakness have emerged in the market. Eight out of the 11 sectors in the S&P 500 Index posted losses in December, and the S&P 500 Equal Weight Index, which measures the performance of common constituent stocks, declined by 6% this month.

 

Matt Maley, the chief market strategist at Miller Tabak, highlighted another concern affecting the stock market at year-end: the increase in U.S. Treasury yields. The yield on the 10-year U.S. Treasury note reached 4.55% at one juncture this week, marking the highest level in over six months.

 

"At the end of the year, people are finally facing the reality that the stock market is extremely overvalued and that the Federal Reserve will not implement accommodative policies as they had expected," Maley said.

However, some analysts believe that this week's pullback might be a good thing as it has eliminated some speculative sentiment in the market and created conditions for a rebound.

 

As it is the end of the year, there will be relatively few macroeconomic data releases in overseas markets next week. What is worth paying attention to is the speech scheduled to be delivered by Kazuo Ueda, the governor of the Bank of Japan, next Wednesday.

 

The Bank of Japan kept interest rates unchanged this week, marking its third consecutive hold. Analysts believe that in the context of unclear internal and external situations, the Bank of Japan's next interest rate hike may come in January next year.

 

 

 

Monday: Final value of the UK's GDP annual growth rate for the third quarter, the U.S. Conference Board Consumer Confidence Index for December, Canada's GDP for October.

 

Tuesday: The Bank of Canada releases the minutes of its December monetary policy meeting, the Bank of Japan releases the minutes of its October monetary policy meeting, the Reserve Bank of Australia releases the minutes of its December monetary policy meeting, the Richmond Fed Manufacturing Index for December in the U.S., and the annualized number of new home sales in the U.S. for November.

 

Wednesday: Kazuo Ueda, the governor of the Bank of Japan, delivers a speech, API crude oil inventories in the U.S. for the week ending December 20.

 

Thursday: Initial jobless claims in the U.S. for the week ending December 21, the 30-year fixed mortgage rate of the Mortgage Bankers Association in the U.S. for the week ending December 16.

 

Friday: Summary of the opinions of the members of the Policy Board of the Bank of Japan's December monetary policy meeting, Japan's unemployment rate for November, EIA crude oil inventories in the U.S. for the week ending December 20.