As we enter the final month of 2024, markets are poised to follow historical patterns of seasonal strength in December. However, investors remain cautious about key factors such as inflation, labor market data, and Federal Reserve policy. Here’s what we can expect for the USD market as the year wraps up and sets the stage for 2025.
December has historically been a strong month for markets, and this year is shaping up to follow that pattern. The combination of robust economic growth, a resilient labor market, and an easing bias from the Federal Reserve supports positive sentiment. Although uncertainties linger, the fundamentals appear strong enough to sustain market momentum into year-end.
This week’s jobs report will be closely watched, especially as the Fed debates further rate cuts. Despite distortions from weather-related disruptions and seasonal adjustments, the overall trend in employment data will play a significant role in shaping investor sentiment. A strong labor market could bolster confidence, while unexpected weakness may spark caution.
Inflation remains a critical factor. The Fed is monitoring whether inflation is easing or showing signs of resurgence. Any surprises in inflation data could sway expectations for Fed policy, particularly regarding a potential rate cut in December.
The consumer discretionary sector has shown notable strength, with a 13.2% gain in November—its best performance since January 2023. This reflects confidence in consumer resilience, especially among medium- to high-income households, which account for 60-70% of consumer spending. However, lower-income households are starting to experience stress, a trend worth monitoring as we move into 2025.
What’s Supporting Market Strength?
The U.S. economy continues to grow above trend, supporting corporate earnings and investor confidence. This strong macroeconomic backdrop aligns with the soft landing narrative, which remains intact.
While there’s uncertainty about how much further the Fed will cut rates, the central bank has shifted from tightening to easing, providing additional support to markets. Even if inflation persists, the Fed’s cautious approach favors a stable market environment.
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