Stocks will enter the final month of 2024 near record highs as investors look to cap off what’s been another stellar year for US stocks.
During last week’s holiday-shortened trading, the Dow Jones Industrial Average (^DJI) rose more than 2%. Meanwhile, the Nasdaq Composite (^IXIC) and the S&P 500 (^GSPC) rose more than 1%. Both the S&P 500 and Dow Jones ended November at all-time highs.
In the week ahead, a crucial run of labor market data is set to greet investors, with Friday morning’s November jobs report from the Bureau of Labor Statistics serving as the week’s most important release. Updates on job openings and private wage growth, as well as readings on activity in the services and manufacturing sectors, will also scatter the schedule.
Investors will look to this week’s economic data for clarity on the Federal Reserve’s next move on interest rates, which will be announced on Dec. 18.
In corporate news, earnings from Salesforce (CRM), Okta (OKTA), and Lululemon (LULU) will highlight the coming week’s schedule.
A labor look-in
Expectations for future rate cuts from the Federal Reserve have shifted in recent months.
As of Friday, markets were pricing in a 66% chance the Fed cuts rates at its final meeting of the year on Dec. 18, per the CME FedWatch Tool. But looking out further, markets are pricing in just two more rate cuts over the next year, with concerns growing about the Fed’s progress on bringing down inflation.
A labor market that continues to slow, but not dramatically, also likely keeps the Fed focused on inflation, which makes a less compelling case for aggressive rate cuts in 2025. An update on that narrative will come with the November jobs report, due for release at 8:30 a.m. ET on Friday.
Economists expect the report to show a reversal of the dismal October employment report that many believed was heavily impacted by hurricanes and worker strikes.
The November report is expected to show the US labor market added 200,000 jobs in the month, up from the 12,000 monthly job additions seen in October. Meanwhile, the unemployment rate is expected to have inched up to 4.2% from 4.1%.
“Through the monthly swings of nonfarm payrolls, we expect the November employment report to reiterate that while the labor market remains solid in an absolute sense, the softening trend in employment conditions has yet to cease,” the Wells Fargo Economics team led by Jay Bryson wrote in a note to clients. “That message is likely to come through more clearly from the unemployment rate, which we look to rise to 4.2%.”
‘Magnificent’ earnings revisions
Wall Street strategists have been largely bullish when issuing 2025 forecasts, with strategists tracked by Yahoo Finance seeing the S&P 500 ending the year between 6,400 and 7,000. A frequent call in these outlooks has been for a continued broadening of the stock market rally away from the “Magnificent Seven” tech stocks — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) — and toward the other 493 stocks in the index.
“We’ve given an edge to the broadening of market leadership or the shift into Value, but think it’s a close call,” RBC Capital Markets head of US equity strategy Lori Calvasina wrote, emphasizing that another strong year of economic growth could help support the S&P 493.
But not everyone agrees. Barclays head of US equity strategy Venu Krishna pointed out that Big Tech continues to top earnings estimates each quarter. And as long as that streak continues, Krishna argued “Big Tech is likely to remain as critical of an EPS growth driver for the S&P 500 as the group was this year.”
To Krishna’s point, while the broadening is expected to take place throughout next year, earnings revisions remain more positive for many Big Tech names than the rest of the S&P 500.
In a research note published on Nov. 27, DataTrek co-founder Jessica Rabe pointed out that six Big Tech companies have seen earnings revisions for the current quarter come in either flat or higher in the past 30 days. Only Microsoft and Apple have seen their earnings estimates cut more than the S&P 500’s 1.2% estimate trim in that time frame.
Meanwhile, the S&P 500’s 10 largest non-tech companies have seen earnings estimates slashed by an average of 2.7%.
“US Big Tech names have solid earnings estimate momentum, and they are much better off than the S&P as a whole as well as its top 10 non-Tech holdings,” Rabe wrote. “Fortunately, Big Tech makes up a third of the S&P, so their fundamentals have an outsized impact on the index.”
The case for a strong December
Another popular call among strategists has been for the roaring bull market to continue through year-end, with more all-time highs in store before trading wraps up in 2024.
And history supports that argument.
Carson Group chief markets strategist Ryan Detrick reminds us that, in markets, strength often begets strength. Dating back to 1985, when the S&P 500 has rallied more than 20% entering December, the benchmark index has risen further 9 out of 10 times. Since 2000, the index has risen every December after a rally of this magnitude over the year’s first 11 months.
“History says a chase into year-end is quite possible,” Detrick wrote in a research note.
