The December market landscape presented a mixed bag for investors, influenced by fluctuating interest rates and anticipation surrounding potential policy shifts. Wealth Partners Alliance closely monitored these dynamics, providing strategic guidance to navigate the complexities. This recap offers key insights into equity, fixed income, and real asset performance during the final month of the year.
Equity Market Performance
Equities experienced a slight downturn in December, as the S&P 500 retreated. Investor sentiment was largely shaped by elevated interest rates and ongoing uncertainty regarding the potential economic policies from the incoming administration. Despite a dip in NVIDIA’s stock value, the information technology sector demonstrated resilience, joining consumer discretionary and communication services as sectors achieving positive territory. While year-over-year earnings growth projections for the upcoming fourth quarter reporting season have been adjusted downwards, they still anticipate double-digit growth, potentially reaching the highest levels since 2021. Overall, equity markets faced broad declines in December, impacted by higher interest rates, geopolitical tensions, and the ambiguity surrounding new administration policies. Notably, U.S. small-cap stocks were disproportionately affected by the interest rate hikes. In contrast, China’s market showed relative strength, contributing to emerging markets outperforming international developed equities.
Fixed Income Market Review
In December, the Federal Reserve implemented another 0.25% reduction in its target rate, culminating in a total rate cut of 100 basis points for 2024. This action led to a steepening of the yield curve, as long-end yields increased amid persistent uncertainty about future government policy and continued economic robustness. Credit spreads expanded during December, with investment grade spreads increasing by 2 basis points and high yield spreads widening by 21 basis points. Despite this widening, corporate credit valuations remain stretched, with spreads considerably below their long-term averages.
Real Assets and Alternatives
Commodity markets achieved a modest positive return in December, although performance across sub-components varied. The energy sector benefited from rising prices in both oil and natural gas. However, gold prices experienced a pullback in December, retreating from recent peaks. Equity REITs faced a challenging month, declining by 8%. REITs are generally more sensitive to interest rate fluctuations compared to other equity sectors, and were negatively impacted by the rise in longer-dated interest rates.
Wealth Partners Alliance remains dedicated to providing partners with comprehensive market analysis and strategic insights. Understanding these market dynamics is crucial for informed decision-making and navigating the evolving financial landscape.
