Schwab Market Update

Published as of: December 27, 2024, 9:08 a.m. ET

(Friday market open) Major indexes drifted lower early Friday but are on pace for weekly gains entering a session almost barren of market-moving catalysts. Treasury yields climbed again following Thursday's retreat, perhaps a fresh headwind for stocks.

After leading the charge earlier this week, mega caps retreated in pre-market hours today. The Magnificent Seven often help set the overall tone, so their early struggles might extend to the broader market. The PHLX Semiconductor Index (SOX), has had a positive week but remains well below last summer's peak, and tech is the only S&P 500 sector currently at all-time highs. Earnings are scarce today and next week, but Tesla (TSLA) is expected to release quarterly vehicle delivery data before year-end.

Fed speakers are few and far between around the holidays, but the CME FedWatch Tool places odds of a January rate pause at nearly 90% and dials in just two rate cuts in 2025, down from four not long ago. Chances of at least one cut in the first quarter are just below 50% as of early today, according to the tool. The market prices in no chance of a rate hike next year. One metric the Fed watches closely hints that rate cuts to date haven't necessarily improved the picture for laid off workers. Yesterday's three-year high in continuing jobless claims suggest there are "limited opportunities for job seekers," said Kathy Jones, chief fixed income strategist at Schwab.

1. Surging dollar could be sweet and sour: The U.S. dollar remains near recent long-term highs versus competing currencies, in part because the U.S. economy has outperformed most other major economies this year and the Fed has expressed caution about further rate cuts. The dollar's strength, along with the stock market rebound earlier this week and climbing yields, suggest investors expect the U.S. economic party to spill past New Year's. Recent earnings forecasts don't fight that impression, with analysts projecting nearly 15% year-over-year S&P 500 earnings per share growth in 2025, according to research firm FactSet. However, a firm dollar can hurt some stocks, especially sectors like tech and materials where exports bring a decent percentage of revenue. A strong greenback, on the other hand, can lift small caps and sectors that sell mostly to domestic customers.
2. 10-year yield nears annual peak: Though climbing Treasury yields again appeared to hurt stocks today, yields aren't a black and white story. A yield rally born of hopes for economic vigor doesn't necessarily pose as big a risk to stocks as one that simply reflects inflation fears. The current dramatic yield climb of around 100 basis points in three months reflects some of both, building in recent firm U.S. data along with worries about sticky inflation and policy changes from the incoming U.S. administration that might affect prices. In the near-term, a move above 4.75% for the 10-year yield, around last spring's peak, might hurt rate-sensitive sectors like real estate, consumer discretionary, and energy. However, the old trading pit saying, "High prices cure high prices," can apply to yields, as well. Recent Treasury auction demand appeared solid, perhaps a sign that investors are ready to snap up bonds with yields at current levels.
3. Moving averages in focus for SPX: Technically, the SPX traded below its 20-day moving average of 6,027 yesterday but managed to finish above it, a positive move on the charts that might help support the market today. Support lower down might be near the psychological 6,000 mark and below that at the 50-day moving average of 5,938 that the SPX bounced off following last week's plunge. Still, with volume low and conviction light this week and next, it's probably not a good idea to put too much faith in any of the current chart action. In overseas markets, European indexes are on pace for a mostly higher weekly close and Asian indexes ended the week mostly higher despite a surprise surge to 3% for year-over-year December consumer price growth in Japan, which raised the possibility of a near-term Bank of Japan (BoJ) rate hike.

• Netflix (NFLX) shed 1.3% ahead of the open despite what Barron's said was a successful broadcast of two Christmas Day NFL games with an average audience of more than 24 million viewers each. Weakness this morning could reflect a "buy the rumor, sell the fact" setup as shares are up 90% this year.
• Tesla (TSLA) dropped 0.6% in pre-market trading after falling more than 1.5% yesterday. There's little in the way of fresh news but investors might be taking some profits ahead of next week's quarterly deliveries data, which analysts expect to total around 510,000 vehicles.

Surprises ahead? Some possible surprises in 2025 include the chance that China recovers or central banks shifting from rate cuts to rate hikes, said Schwab's Chief Global Investment Strategist Jeffrey Kleintop in his "Top Five Surprises for 2025."

Copper (/HG—candlesticks) and crude oil (/CL—purple line) futures are mostly flat the last six weeks, shaking off volatility surrounding the U.S. election. Crude has eased thanks in part to ideas that the market's well supplied, and copper was burdened most of the year by light Chinese and European economic growth.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

December 30: November pending home sales.
December 31:  No major data or earnings expected.
January 1: Markets closed for New Year's holiday.
January 2: December ISM Manufacturing PMI^®, November construction spending.
January 3: No major earnings or data expected.