The Pulse on the Economy and Capital Markets: December 2024

To Summarize: Stock and bond market performance remains mixed due to uncertainty around expectations of the Federal Reserve’s interest rate policy. Global bond investors are reacting strongly to budgetary concerns. Despite the U.S. economy showing resilience, the persistence of higher-than-expected Supercore inflation keeps the Federal Reserve’s rate policy tighter than desired. We unpack this and more in the December edition of The Pulse.

In the Markets: December has been a mixed month for the stock market. Large, growth-oriented stocks of the Nasdaq, such as the Magnificent 7, have performed well, while the equal-weight version of the S&P 500 and the small company Russell 2000 have declined. Bond markets have struggled due to expectations of higher interest rates, whereas interest-rate sensitive bonds are up 2-3%, while more economically sensitive high yield bonds are up nearly 9% year-to-date. Despite the mixed performance, commodities are thriving on stronger economic growth expectations and Bitcoin continues to be a top performer since the election. 

The Resilient Consumer: Real-time indicators highlight steady growth fueled by consumer spending. Retail sales are growing at a 6.8% annualized pace over the last six months, despite the persistent effects of supercore inflation. What is fueling this spending? Baby Boomers, who control a significant share of household wealth, and rising real incomes are the key drivers supporting economic growth. 

Supercore Inflation: The potential resurgence of inflation remains a sobering concern. The Federal Reserve is closely monitoring Supercore inflation, which is Services inflation excluding the cost of housing, to determine interest rate policy. Transportation and healthcare costs are driving persistent supercore inflation, which remains elevated at 4.25%. Real-time inflation has tripled over the last three months, reflecting ongoing price pressures. This aligns with concerns that inflation is firming as we enter 2025. 

Top Headlines: We’re reading about how Elon Musk wants $2 trillion cut from government spending, what in-office attendance may look like in 2025, Cyber Monday hits online spending record with $13.3 billion, and TSMC’s first advanced U.S. chip plant “Arizona Fab” is on schedule to make history.  

Related resources:

• Musk Wants $2 Trillion of Spending Cuts. Here’s Why That is Hard
• 2025 Outlook for Office Attendance
• Adobe: Cyber Monday Hits Record $13.3 Billion in Online Spending with Majority of Sales Driven by Mobile
• TSMC says first advanced U.S. chip plant ‘dang near back’ on schedule. An inside look at the Arizona Fab

Disclosure: 

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